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Scott E. Baker Senior Vice President First Citizens Bank (919) 716-4164


Scott E. Baker Senior Vice President First Citizens Bank (919) 716-4164 Purpose of Today Analyzing the opportunity (make sure it is an opportunity) – PowerPoint PPT presentation

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Title: Scott E. Baker Senior Vice President First Citizens Bank (919) 716-4164

Scott E. BakerSenior Vice PresidentFirst
Citizens Bank(919) 716-4164
  • Purpose of Today
  • Analyzing the opportunity (make sure it is an
  • Doing your homework prior to obtaining the
  • 3. Meeting the bank (primary lender) prepared

Questions to Consider Before Meeting With a
  • Any lender or investor you approach for funding
    will evaluate your strengths and weakness as the
    owner or manager of your business. Below are
    several questions that lenders or investors may
    ask you when evaluating your ability to run your
    business. Consider your answers carefully the
    answers could be deal makers -- or deal breakers.
  • 1) How well do you get along with different
  • Business owners must develop a working
    relationship with a variety of people including
    lawyers, accountants, bankers and clients. Can
    you deal with a demanding client or an unreliable
    vendor in the best interest of your business?
  • 2) Do you have the stamina to run a business?
  • To run your own business is a lot of work. Can
    you face twelve-hour workdays, six or seven days
    a week? You must have physical and emotional
  • 3) How good are you at making a decision?
  • Often you are required to make quick decisions
    under pressure and independently.

Questions to Consider Before Meeting With a
  • 4) How well do you plan and organize?
  • Organization of finances, inventory, schedules,
    production, etc. can help avoid potential
    pitfalls. Many business failures could have been
    avoided through better planning and organization.
  • 5) Is your drive strong enough to maintain your
  • A leader must have a strong drive to avoid
    feeling burned out by carrying all
    responsibilities on their own shoulders.
  • 6) Will your spouse or mate support you?
  • The first few years of business start-up can be
    hard on your family. The strain of a
    non-supportive spouse may be hard to balance
    against the demands of starting or expanding
    business. There is usually some financial
    difficulty for a few months or years until a
    business becomes profitable. You and your spouse
    must be ready to adjust to a lower standard of
    living and understand that you may be putting
    your family assets at risk on a daily basis.

Seven Important Questions the Lender Will Ask
  • How much money do you want?
  • Decide how much money you need to borrow for a
    specific purpose - before you go to the bank.
    This will take some careful thought and research
    into exactly what you hope to buy with the money
    (equipment, personnel, another firm) and how much
    it will cost. It's best to be as precise as
    possible. For example, if you want to set up an
    Internet business and you need a web server, tell
    the bank the specifications and brand of the
    server, not just that you want "a server." Your
    banker will double check your figures and prices,
    so be prepared to explain your choices and your
    overall plan.
  • 2) What are you going to do with the money?
  • As far as the bank is concerned, there are only
    four ways to spend cash from a loan 1)You can
    buy new assets 2) Pay off old debts 3) Buy out
    a partner or associate or 4) Pay for expenses
    (equipment and the like) needed to generate new
    revenue. Avoid saying that you are "just going to
    use the money for working capital." Although this
    is often listed as a choice on forms and in Small
    Business Administration documents, many bankers
    consider this answer a sign that you don't have a
    well thought-out plan.

Seven Important Questions the Lender Will Ask
  • 3) Why is this loan good for your business?
  • It may seem like a very obvious question, but
    lenders have a limited amount of money available
    for small businesses. The lender wants to give
    this money to support businesses that have well
    thought-out plans and that represent a low risk
    for default. Be prepared to discuss in detail
    what the money will do for you -- not just what
    you plan to spend it on, but what spending the
    money will mean for you from a competitive and
    growth standpoint. Don't forget to explain why
    your business represents a good risk.
  • 4) Why do you need the bank's money to implement
    your plan?
  • The thinly veiled question here is, "Why don't
    you have enough money of your own to do this?" In
    this case, the lender is trying to find out
    whether an internal management problem is to
    blame for your financial need, or whether there
    are other reasons (such as to support rapid
    growth). If you have prepared a careful answer to
    question 3, this question will be easy to
    answer. Don't get flustered emphasize the
    benefits of the loan to your company's
    competitive position and growth plans.

Seven Important Questions the Lender Will Ask
  • 5) When will you pay the loan back?
  • When the lender asks this question, he or she is
    expecting to see a cash flow projection that
    clearly indicates that the business will bring in
    more money than it spends so that the loan can be
    repaid in a timely fashion. This statement will
    be most effective if you have a positive cash
    flow in the months or years prior to applying for
    the loan. To demonstrate this, you'll want to
    provide historical data as well as future
  • 6) How will you repay the loan?
  • When you answer this question, don't be vague.
    Use your financial projections and your business
    plan to convince the banker of the long-term
    profitability of your business. Be prepared to
    supply a copy of your business plan, complete
    with financial projections.

Seven Important Questions the Lender Will Ask
  • 7) What happens if your plans don't work out or
    your projections are off?
  • This is why many banks require collateral and
    personal guarantees (putting up personal assets
    to guarantee a loan). In answering this question,
    you'll want to assure the banker of the value of
    your collateral in case your projections are not
    correct. While entrepreneurs are generally
    positive about their chances of success, bear in
    mind that bankers are inevitably somewhat
  • A Note About Collateral Real estate
    (owner-occupied or commercial) that is used as
    collateral must be appraised by a third-party
    appraiser for loans of 50,000 or more. Other
    types of collateral include marketable
    securities, equipment, vehicles, boats, stocks,
    bonds, and similar items. Without sufficient
    collateral, a bank will often require the owner
    to offer a personal guarantee - meaning that the
    owner will tie his or her personal assets to the
    business for the purposes of the loan. The loan
    officer does this because he or she figures that
    while you might sacrifice your business in
    bankruptcy, you will think twice before you give
    up your personal assets.

Before You Go to the Bank Check Your Credit
  • Before applying for any loan, it is a good idea
    to check your personal and/or business credit
    history to make sure there are no unfavorable
    items on the report. This is essential, because
    running a credit check is the first thing that a
    loan officer will do after receiving your loan
    application. If there is anything negative on
    your credit report, it could make it more
    difficult for you to get a loan.
  • There are three major credit bureaus that most
    banks get reports from. These are
  • TRW Consumer Credit Service
  • 12606 Greenville Ave.
  • P.O. Box 749018
  • Dallas, Texas 75374
  • (800) 422-4879
  • Trans Union Consumer Relations
  • 1561 E. Orange Thorpe Ave.
  • Fullerton, CA 9263
  • or
  • 760 Sproul Rd.
  • P.O. Box 403
  • Springfield, CA 19064-0403
  • (216) 779-7200
  • (800) 851-2674

Before You Go to the Bank Check Your Credit
  • Equifax Credit Information Services
  • P.O. Box 740256
  • Atlanta, GA 30374
  • (800) 879-4094
  • (800) 685-1111
  • Each of these credit bureaus is required by the
    Federal Credit Reporting Act (FCRA) to tell you
    what is in your file - and to allow you to
    correct any errors on your record. You are
    entitled to one free credit report each year - if
    you ask for more, you may have to pay a fee. It's
    a good idea to order a report from each of the
    major credit bureaus. Mistakes could appear on
    one report and not another, and you cannot be
    sure from which vendor a bank will order a
  • How to Remove Unfavorable Items from Your Record
  • When you receive the credit report, look for
    possible errors in the file. Negative items that
    are not true or even partly untrue should be
    disputed. You also should dispute any vague,
    outdated, or misleading items.

Before You Go to the Bank Check Your Credit
  • To dispute any item, send a letter to the credit
    bureau. Some bureaus will accept phone calls
    about disputes. Whether you choose a letter or a
    phone call, be organized and level-headed when
    you assert your claim. It is a good idea to check
    your records for evidence, such as canceled
    checks or letters, that can be used to prove a
    mistake was made. Be sure you have all of your
    facts straight and can present them in a precise,
    logical, brief fashion. Also, be prepared to send
    or fax a copy of your evidence.
  • By law, credit bureaus must investigate any
    disputed information and either issue a response
    to you or correct the problem within 30 days. If
    the source of the original, negative data does
    not respond to the credit bureau within 30 days,
    the bureau will remove the item from your report.
  • If your report was corrected, you may ask the
    credit bureau to send corrected copies to anyone
    that received a copy of your report within the
    last six months.
  • If mistakes were not made and there are negative
    items on the report, you have the option to
    insert a consumer statement explaining any
    item(s) on the report. The statement must be 100
    words or fewer.

Before You Go to the Bank Check Your Credit
  • If you do have a less than sterling credit
    rating, it is a good idea to work on improving
    your rating. Consider taking out a small loan
    that is tied to your savings account. Be careful
    to make every payment ahead of the due date, and
    pay off the loan before the maturity date. This
    will show the banker that you can fulfill your
    obligations, and will increase his or her trust
    in you. This will make it easier to qualify for
    other, larger loans later.
  • IMPORTANT NOTE Be extremely wary of credit
    repair agencies. If you consider using one, be
    sure to investigate it thoroughly in advance by
    calling the Consumer Fraud Agency of your state
    (and the state the agency is in, if it is in a
    different state), as well as the Better Business
    Bureau in the city the firm is located in. Many
    of these firms do little to repair your credit.

Checklist of Documents You'll Need to Apply for a
  • Most current financial statement for the
    business. (Many lenders have their own form that
    they'll want you to use to present this
    information. Ask the lender for a copy of this
    form and use that to display your financial
  • Income tax returns for the last two (2) years for
    the business. (Include reasonable supporting
    schedules, such as depreciation schedules or
    other lists of tangible property used in the
  • Other business records, such as aged accounts
    receivable and accounts payable reports, lists of
    property owned by the business, lists of
    inventories, etc.
  • Personal, current financial statement. (Many
    lenders have their own form that they'll want you
    to use. Ask the lender for a copy of this form
    and use that to display your financial

Checklist of Documents You'll Need to Apply for a
  • Personal income tax returns for the past two
    years. (Unless your company has a long operating
    history and substantial assets, you should expect
    the lender to require the individual guarantee of
    the principal owners of the business. Generally,
    lenders will want to see two years' worth of
    income tax returns.)
  • Current business plan or other specific
    explanation of how you plan to use the loan
    proceeds. (It is hard to put a specific
    definition on this document. In most cases, you
    will be borrowing money for specific purposes to
    start a new business to build, buy, or upfit
    space to purchase or lease vehicles to finance
    inventory or for working capital. Whatever the
    purpose, including a detailed description of the
    use of proceeds is advisable.)
  • Resumes of the company's principal owners and
    managers (even if not owners). (The object here
    is to show that owners and managers have
    sufficient experience to successfully operate the

Checklist of Documents You'll Need to Apply for a
  • Copies of any important business contracts.
    (Include copies of space or vehicle leases and
    copies of any other notes, mortgages, or security
    agreements including a recent statement from the
    lender showing the payoff.)
  • Depending on the size of your company, you may
    want to include a list of employees, their duties
    and salaries, including any rights or bonuses or
    equity promised. As a general rule, this is
    advisable if payroll is a significant expense for
    the business or if any employees have long-term
    (one-year or more) contracts.

Checklist of Documents You'll Need to Apply for a
  • If you are buying a business, contracting a
    building, upfitting leased space, buying
    vehicles, etc., include a copy of the Purchase
    Agreement, Construction Agreement, etc.
  • If you are building anything, include copies of
    drawings of the improvements.
  • If you are buying commercial or residential
    rental property, include a rent roll showing the
    current rent and other charges and the status of
    any leases.

Business Plan
  • Business Plan
  • Background, education, experience of Owner
  • Site Selection
  • Strategy
  • Revenues
  • Costs/Expenses
  • Projections
  • Implementation

Six Steps You Can Take to Help Ensure the Banker
Approves Your Loan
  • 1) Build a relationship with your banker.
  • One of the easiest ways to dramatically increase
    your chances for loan approval is to build a good
    relationship with a banker (or two!) before you
    ask for a loan. Once a relationship is
    established, the banker can help advise you on
    who to contact, how to go about applying for a
    loan, and provide an insider's perspective on the
    process. In some cases, the banker may take a
    special interest in your application and put in a
    good word for you with the loan department -
    which helps your application stand out from the
    rest of the pile on the loan officer's desk. With
    a banker willing to vouch for your character and
    integrity, the loan officer may be more inclined
    to approve your application.
  • 2) Choose a bank carefully.
  • Don't just drop into the most convenient bank to
    try your luck at getting a loan - do some
    research first. Ask business colleagues, mentors
    and others where they got a loan or do their
    corporate banking. Ask if they are pleased with
    the service and satisfied with the loan process.
  • After you get some input, call the banks that you
    have heard good things about and ask what types
    of loans are currently available. Banks sometimes
    change the types of loans they offer, so it pays
    to investigate the types of loans available
    before you go to the bank. You also should
    investigate the types of checking, savings, safe
    deposit, credit card, and other services the bank
    offers. Banks that extend a loan to you may want
    to gain this business as well, and being willing
    to sign up for these services may help get your
    loan approved.

Six Steps You Can Take to Help Ensure the Banker
Approves Your Loan
  • 3) Try to get a personal introduction or
  • After you decide what bank to approach, try to
    find someone who is a good customer of the bank
    to introduce you to the banker. The introduction
    can be as simple as a phone call to the banker
    explaining that "I spoke to George Porge today
    and suggested he contact you about your services.
    He should be in today."
  • If possible, it is even better to have the person
    offer a recommendation for you. This also can be
    simple "I spoke to George Porge today and
    suggested he contact you about your services.
    He's a really good guy with a great new business
    that I think could become a good account for you.
    I told him to stop by and talk to you about
    banking services that you offer before he signs
    on with another bank. He should be in today."
  • Having a personal introduction or recommendation
    alerts the bank that you are coming and allows
    the banker time to prepare. More importantly,
    having a recommendation from a good customer also
    gives you instant credibility and makes the
    banker feel more comfortable with you.

Six Steps You Can Take to Help Ensure the Banker
Approves Your Loan
  • 4) Dress properly every time you go to the bank.
  • Even though casual dress is popular in the
    workplace, lenders still tend to prefer more
    formal attire. Dress conservatively and cleanly
    every time you go to the bank - resist the
    temptation to run into the bank to drop off a
    form while painting your new office. Bankers will
    pay attention to you every time you go to talk to
    them, and they are looking for a serious,
    business-like, conservative professional to lend
    money to.
  • 5) Be prepared for every meeting.
  • You must be calm and collected for every meeting.
    Do not provide all your documents at the first
    meeting simply carry on a conversation by asking
    about the loans that they have (although you
    already have investigated this in advance).
    Interview the banker without intimidating him or
    her. Always look the banker in the eyes do not
    look around and do not bring anything along that
    would distract or annoy the banker, such as
    children, pets, cellular phones, beepers or
    packages. Speak honestly and softly, and be
    prepared to respond to any questions that could
    be asked. Have a friend or coworker quiz you
    before you go to the bank so you can answer

Six Steps You Can Take to Help Ensure the Banker
Approves Your Loan
  • 6) Invite the banker to visit you at your place
    of business.
  • Suggest an appropriate time for the banker to
    visit your office, shop or job site to show him
    or her what your business is all about. This will
    help convince the banker that you are serious and
    will help build rapport. Make sure that the
    office, shop or job site is clean (no stacks of
    empty cartons, mess on the floor or food trash
    lying around) and that employees are dressed
    cleanly and neatly. Although this may seem like
    common-sense advice, bankers deny more loans than
    they approve, and most have many, many stories
    about inappropriate behavior or attitudes that
    discouraged them from approving a loan.
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