Understanding the Complexities of Obtaining Commercial Capital
I worked in commercial banking for 27 years and have created a company, Trinity Financial Consulting, to help Business Owners, Churches and other organizations to access & obtain commercial capital to finance acquisitions, partner buyouts, expansion and refinances. It may be easier for me to help you understand this difficult and moving target (rules) by dividing the article into two parts, The Bank and The Borrower.
First the Banks. The big banks have been required to operate differently since the 2009 financial crisis because government mandates. The mandates are to prevent bank failures similar to those in 2009 through 2011 which created such economic disaster.
Below are two very important guidelines to help you be successful in finding the right lender for your company and project:
- Seek lenders that specialize in your industry type.
Banks in your industry will be familiar with the numbers (Risk, Default, Returns and Losses)Every bank specializes in certain areas and stays away from other areas.
- Seek multiple lenders
Every bank has approved credit policies and will vary from lender to lender.
Credit Managers at those lenders will vary from being extremely conservative to more liberal (90% of all credit managers are conservative people by nature, it’s a matter of how conservative).
These two ideas are important because the government dictates the following areas for the banking industry:
- Limitation on Commercial Loan Portfolio
Every bank has limits by industry type on their loan portfolio balances
- Bank Size & Lending Sweet Spots
Bank’s value in assets have a direct correlation to the amount that they can legally provide loans for (i.e. JP/ Chase Bank – Trillion dollar bank loan limits maybe $1B and your local community bank maybe to loan out $5,000,000 because their assets total, $500,000,000).
As a borrower, you can help influence the credit decision of the lender by keeping your financial house in order. Pay attention to all the areas below to make sure your project receives the most competitive lending offers possible.
- Accurate and Timely Financial Reporting (Good consistent CPA statements & Tax returns add creditability)
- Building & Maintaining Cash Reserves
- Understanding and Providing Cash Flow Analysis
- Providing Financial Forecasting (Balance Sheet, Income Statement and Cash Flow)
- Provide Corporate Ownership Structure Flow Chart and Bring Some Financial Stability for Emergencies.