Perhaps one of the most thought about questions, but rarely spoken about topics is how to make my business bankable. As a modern small or large business holder, many have been faced, at least once in their career, with the idea of expanding, the need for credit for stock or security in the uncertainty of the covid-19 climate. However, considering the option of a loan or needing one does not translate into actually being a successful candidate for a bank. Further, the thought of approaching a bank can be a daunting one, but it does not need to be.
How can my business become bankable?
Naturally, the best source of this type of information would be the banks. Let us examine this elusive bankability through the eyes of a small business owner. As a small new business owner, we can become lost in a very temporary euphoria that we have survived 12 months as a business managing our cash flow and our stock. It is euphoric because while we are celebrating our 1st anniversary, the entrepreneurial wheels begin to spin. Can we expand? Can we increase our profit by adding more stock? However, in an era, as covid, it is somewhat problematic to dedicate our current cash flow to expand or diversify our supplies. Therefore, we seek financial assistance, and one of the easiest or clearer paths can be through the banks.
What should businesses be practicing to make their portfolio attractive for credit?
Here is what the banks have to say –
There seems to be a “deterioration” in information, more so of the practicality of information provided by businesses that would clear their path to become bankable. One of the reasons for this information retrogression came after the 2000 Business Tax Legislation. Audited financials, to be specific, became more of an unnecessary expense rather than a necessity. Whether this was a progressive step to the future of investment is debatable. What can be said about this is that it limited the importance of producing these types of documentation. While this gave businesses the freedom to operate sans audit, in the long term, it increased the workload when it came to determining whether the business was a viable candidate for banks. While there may be a school of thought which believes that the banks require too much information. However, one of the key objectives for a bank when considering a business loan is understanding both the owner and their business.
On the road to becoming bankable: business best practices.
Consider this, owning a business requires a high level of discipline and a higher level of accountability. Many small and new business owners may find themselves overwhelmed at the idea of having to log every purchase and sale made, marketing for new clients, paying their taxes, and also keeping track of their stocks. However, it is more disconcerting to focus on these types of documentation at the moment when they are needed for funding. These are business best practices that can translate into our business becoming bankable. We should then view business documentation as a friend, not a foe. Documentation in the form of receipts, statements, computerized logs, even the smallest purchase for the business tells the story of its financial accountability. What is also fundamental is a clear record of business deposits into their respective accounts. What this essentially exhibits to banks is a steady cash flow. It demonstrates to them that the particular business is on the right path of responsible financial reporting.
Establish key financing relationships
As entrepreneurs, there are various stages of development of our ventures. Nevertheless, there is an undeniable fact that while we may feel as small business holders, that we can achieve it all ourselves, at some juncture we need assistance. The anxiety of travelling down the road to bankability can be mediated by communication. What this means is establishing a relationship with financial institutions can be most helpful. What should also be noted is that, because we are at various points in our development, being denied a loan is not the end of our financing or entrepreneurial story. What is advisable to both banks and businesses is to collaborate and develop a plan. The willingness on the part of banks to consistently work with entrepreneurs charting their financing accountability is key. On the flip side to this, businesses who wish to begin to map out their future are on the right path to bankability if they have an ongoing relationship with their banks. What is also pertinent is honesty in the venture. That is, while banks can work with new small business owners and their ideas or plans, some ventures may not result in success. This can be one of the unfortunate possibilities in the life of an entrepreneur.
It is also advisable for entrepreneurs to find their fit. Finding the financial institution that best fits their purpose and who is capable of having an ongoing fruitful relationship on how they can become bankable. It is all about clarity and the avoidance of miscommunications. Knowing what is needed and communicating what is realistic are both essential. As entrepreneurs navigate these rough pandemic “waves” they should remember that they are already experiencing the adventures of owning a business. Therefore, trekking down the path to becoming bankable is perhaps not as daunting. It is part of the story; and the truth of the matter is, attaining true financial accountability can be more than just economically rewarding.
By Saidy Godette