|Delynn Fielding speaks about how to get financing for your new business.|
When a new business opens, many steps to the success of this business have already taken place. One step that may have been taken is acquiring the capital to open the doors for this business. Delynn Fielding, the director of Economic Development for Carbon County and a retired banker with 27 years experience, explained to the Castle Valley Summit goers how to get money from a banker.
"Let's consider the banker as a dragon. This dragon likes to eat paper and you cannot give him too much. He's very hungry and paper is the only thing that will make him happy. But, there are certain kinds of paper he likes best, and those are the papers you want to feed him when you are applying for a loan," said Fielding.
Fielding went on to say that the only thing more important to this dragon is that the person who is applying for the loan knows, in depth, what is in the papers. A person who is looking to a bank for help with a business start up must know how these papers relate to the business.
A business plan is more important to the business owner, the banker does not want that paper. But, the banker does want to know that the business owner knows the business plan.
Another helpful thing for a prospective owner to know are basic accounting principles. "Accounting for Management or Managerial Accounting are two very good classes for a prospective business owner to take," said Fielding. "When a person approaches a banker for a loan, the banker must know that the person is very familiar with each of the papers, what they mean, and how they affect the business. The primary language used between bankers and business is accounting."
Some of the papers the dragon likes to eat are contained in your loan proposal. They are: the summary; management profiles; business description; projections; financial statements; purpose of the loan; amount; and repayment plan. Each of these areas must be precise and detailed.
Another thing a person must know before he approaches a banker for a loan, is what kind of money he needs. There are two types, long term and short term money. A person must ask for the correct kind of money.
Short term financing is usually the kind that is for less than one year. It may cover items such as accounts receivable, inventory, or seasonal items. Long term financing is for more than one year. This type of financing would cover things like property purchases or equipment purchases.
Some of the key questions a banker will ask are: can the business repay the loan; can you repay the loan if the business fails; does the business collect its bills; does the business control its inventory; does the business pay its bills; are the officers committed to the business; does the business have a profitable operating history; does the business match its sources and uses of funds; are sales growing; does the business control expenses; are profits increasing as a percentage of sales; is there any discretionary cash flow; what is the future of the industry; and who is the competition and what are their strengths and weaknesses?
One of the things the banker will look at is the ability of the business owner to repay the loan. This is where the cash flow statements will be analyzed, as this is the primary source for repayment. The secondary source of repayment would be the collateral, but a person should know that the banker does not want your equipment, he is depending on you to repay the loan according to the terms. The banker is the first person you should inform in the event of a problem. This will alert him to the fact that you are thinking about repaying him.
"An important thing for a business owner to remember is too much growth, too quickly can do more harm to a business than good. The roots must be deep and secure to support the growth. Smaller, regular growth is preferred," stated Fielding.
"So feed the dragon, give him all he wants, let him know that you know what is in the paper, and give him full and complete disclosure. There is nothing he dislikes more than someone who is willing to hide things from him. Remember, the successful relationship between business and banking is when both sides make profits," concluded Fielding.