AFTER THE LOAN IS APPROVED
Now your business loans are approved and you are beginning what is hopefully a long-term relationship with the bank. Keep it an active and open relationship.
Remember that the bank wants a good customer (profitable, stable, with active communication). Here is what you should do.
Forecast and monitor cash flow.
Cash is the lifeblood of your business. Pay attention to seasonal fluctuations, receivable collections and how significant growth or losses affect your cash needs. As an example, a large contract and receivable may create profits, but also create a significant short time cash need that may require a line of credit increase.
If an additional need arises, request the financing in advance of your needs. While the bank may approve short-term loans for emergency needs, it is always best when the company identifies and explains the need for additional financing. Surprises are not good.
Understand the bank’s expectations.
What does the bank expect the company to look like next year? How much profit will the company retain? How much borrowing do they expect? What are the key ratio and performance measures the bank is monitoring and what are the minimums the banks expects you to maintain.
The loan agreement may include covenants. These are financial statement ratios the company needs to comply with. This may include a debt to worth ratio, a working capital ratio and a cash flow coverage ratio. These ratio requirements were likely set based upon the projections you provided. Missing these ratio requirements requires the bank to approve a waiver and highlights negative news about the company.
Provide timely, consistent and complete financial information.
The bank expects to be able to monitor the financial performance of the company and the status of the collateral through periodic reports. This is the permanent record of your company’s performance. Hire the financial expertise to assist you to make sure the reports you send to the bank present the performance of your company in the best light.
Annual Financial Statements may need to be Compiled or Reviewed by your CPA firm. Interim reporting is typically required quarterly. The form and format of the interim reports should be consistent with the year-end statements.
Stay close with the Bank, but keep an alternative in the wings.
The loan officer is your principle contact with the bank and the primary advocate for your company. Maintain this relationship, meet the senior people and keep track of the changes that may affect your company.
These changes can be good or bad for your company. A good change could be the promotion of your loan officer to a more prominent position in the bank. A questionable change might be the appointment of a new Senior Credit Officer who might “tighten” the rules for approving loans. A bad change could include the acquisition of the bank by a larger bank.
Because changes can happen at any time, it is worth the effort to keep another bank is the wings. A supply of credit and money is important for your business. Having a back up bank is just good planning.
Remember, getting the loan approved is only the first step in a long relationship with the bank. Keep the relationship strong by keeping the bank aware of the changes in your business and your plans for the future.