A business plan is useful when looking for a new bank. But don’t use an equity raise BP. Instead, toot your horn from a banker perspective.
Another year is done. It’s time to lock down the numbers. While the banking market is thawing but still chilly, some companies are busy finishing business plans and looking to test the market in search of a better bank. Bankers are looking to get off to a good start- if there is a quarter to go out even in a tough year, the 1st quarter could be it.
The business plan and forecast is an important part of the package. It can be shorter and less in depth than a business plan raising equity. However, there is something extra to add to the bank version of a business plan.
I call it tooting your horn from a banker perspective. Have a section that looks at your world through bank lenses. Consider some things that would be on their radar to put in this section:
1. Payment History. What is your history of payments over the past 3-5 years? Can you show reductions in your debt? Have you been on time with all your payments? If you use a seasonal line of credit, were you able to pay this off during the year? How was excess cash generated in the business used- did some of it go to reduce bank debt?
2. Covenant Performance. What financial covenants were you under? How did the covenant levels change each year or during the season? Were you in compliance with all of them? How much cushion did you have on the covenants? Did you have to get any covenants reset?
3. Collateral. Was collateral involved in your loans- such as receivables, inventory, equipment or real estate? How did your collateral values hold up? How much cushion is there with your collateral versus your loan? Were there any surprises in your collateral, such as write-downs? How did bank appraisals stand? What comments came up during bank audits?
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5. Reporting. How soon do you report monthly, quarterly and year-end numbers? When did the bank require these statements? Were there any restatements? Do you get an annual audit or review? What were the results?
6. Compliance. Were there any other compliance issues that came up? Anything else as a result of bank reviews or field audits?
7. Predictability. How predictable are your results? Do you have a steady flow of revenues and customers? Do costs fluctuate with revenues? Do you have control over prices? Did the bank require a budget and when? How have actual results matched against budget?
8. Bank Income. What income has the bank made from your company during the past few years? Include income from treasury services as well as income from loans.
9. Relationships. Have you been involved in the same part of your bank? What bankers (position) have been involved? What changes have taken place? How often have you got together? Who has been the point person in your company? Have there been changes?
If you’ve got it, flaunt it. Break the ice in a frigid banking market if you can show you’ve done well after a year when many companies have fallen short of what their banks want.