Having a solid banking relationship can be the key to having a successful, long-term business. A local bank is not just helpful in funding your company; it can also source valuable products you need as well as provide you with networking opportunities, contacts and professional insight.
Prepare clear, consistent financials
However, before you commit to a banker for your business, you should maintain up-to-date financial statements and regular internal reporting cadence. This includes a balance sheet as well as profit & loss (P&L) and cash flow statements that evaluate your business’s performance and financial standing.
You should also track key performance indicators (KPIs) and margins, which means monitoring the metrics that are measuring your business’s profitability and evaluating its business health. It’s best to compile all this information into a one-page business summary for quick review.
Additional documents you should keep on hand are cash flow forecasts, debt schedules and use-of-proceeds scenarios:
- Cash flow forecast — estimates your business’s future financial liquidity over time
- Debt schedule — an organized table of all your outstanding loans, credit obligations and liabilities
- Use-of-proceeds document — outlines how a company is planning on spending its raised capital
Build regular, transparent communication
Once you’ve found a banker, remember that one of the most important aspects of a banking relationship is clear communication. Schedule periodic check-ins where you share updates on your business performance, challenges and plans. These regular meetings will keep your bank aware of how your company is doing so they can make recommendations when needed.
It can be difficult to open up about your business's faults, especially when being considered for a loan, but it’s imperative to be candid about the risks of supporting your company. In order to build trust and credibility, you should always be honest with your bank about what exactly they’re getting into, and you may even be surprised at their willingness to help you.
As the business owner, you should not be the only one who builds a relationship with your bank. Be sure to introduce key members of your team, such as your chief financial officer or chief operations officer, to your banking team.
Demonstrate operational and financial discipline
It’s also important to implement and document consistent management, to prove to your bank that you’re a responsible business owner. This means handling your company’s receivables, payables and inventory controls, and ensuring covenant compliance, all to make sure you have enough liquidity to cover daily expenses. It also connects to the implementation of strong internal controls, governance and expense management practices to guarantee accurate financial reporting and operational efficiency.
You should never mix your personal and business funds. To keep your finances organized and set up efficiently, we recommend having a business bank account with a business-specific credit card, payroll system and line of credit. This separation helps ensure your personal assets are not exposed to business lawsuits or creditor collections, simplifies the process of deciphering between personal and business transactions when filing taxes and makes it easier to determine the real profitability of your business.
Leverage your bank as a strategic resource
A bank offers many more services than just loaning money. You may find your business benefits greatly from a bank’s treasury management, the process of monitoring its finances to ensure it has enough money to run smoothly while still optimizing excess cash and avoiding exposure to fraud. Other offerings are merchant services, which provide companies with the tools to accept payments, and payroll services, which enable companies to pay their employees.
You should start building a relationship with your banker about three to six months before your business needs funding. One way to initiate this is to ask your banker for their insight on which credit structure is right for your business, what timeline works best for receiving funding or what alternative solutions are available as backup plans.
Before a bank agrees to finance your company, it’s a good idea to paint a clear picture as to where your business stands and what your future business goals are. Invite the banker to meet your suppliers or review growth plans so they can understand your business model. This will allow them to understand your business and also to tailor its financing to your needs.
Plan and prepare for future capital needs
As you prepare for funding, it’s recommended you plan multiple funding scenarios, each with their own timelines. These options include a term loan, a lump sum that’s provided up front and repaid with interest in fixed installments, a line of credit, a revolving loan that acts similarly to a credit card, and asset-based lending, a method that allows a company to use its assets as collateral in securing a loan.
Compiling a concise lending package as a formal pitch can play a crucial role in securing financing. The most critical part of the package is a one-to-two-page summary containing an overview of your business, its mission, loan details, use of proceeds and repayment plan. It should also include financial projections, collateral details and several references.
An important thing to remember is to continuously monitor your credit profile and keep an eye out for any covenant triggers. Running a business will always come with challenges, but proactively addressing these issues will show your bank you’re dedicated to your business’s success and will make them more willing to help you overcome them. This honesty and devotion will make your banking relationship stronger so your business can thrive.