Part of keeping your business nimble and ready for ever-changing opportunities is to keep your borrowing information up to date. Once a year, take a few steps to ensure your business is ready to approach a bank or other lender for borrowing needs. Here is a list of the items for your annual borrowing checklist.
- Keep good accounting records. Lenders are often more concerned about the accuracy of the records then the actual information presented. Keep a set of interim financial statements for each month end or quarter and keep a set of end of year statements for the last three years.
- Keep accurate and up to date business organization records available in one place. For a sole proprietorship, this would be any business license and assumed name certificate. A corporation should keep original and copies of a) articles of incorporation b) certificate of incorporation, c) corporate bylaws (up to date), corporate minutes, and copies of all corporate resolutions. Limited liability companies (LLC) and partnerships have similar documents.
- Have all shareholders who own more than 20% of the company keeps a personal financial statement up to date. Generic forms or forms from nearly any bank are often acceptable to many lenders. Generally a lender will accept a personal financial statement that is less than one year old as long as it has not materially changed.
- Know several important statistical characteristics of your business. Lenders want to know that management understands its day to day financial condition. Lenders will often “size up” management at the very early stage of a loan request and use this process to weed out companies they don’t want to “waste time” on. Here is a partial list of information that management should always know about their company through the last interim financial statement: a) year to date gross sales; b) year to date gross and net profit; c) current accounts receivable balance; d) current accounts payable balance; e) who the top five customers are and what % of sales each represents; and f) projected annual sales for the current year.
- Make sure all shareholders who own more than 20% of the company knows what their credit scores are. A shareholder should be fully informed about any negative characteristics of their report and be prepared to proactively explain them. If a principal finds any discrepancies, they should be handled expeditiously. Negative entries on a credit report that are explained honestly will have less impact than if the lender finds them and must ask about them.
- Management should keep easy to find proof that all necessary taxes and governmental reports have been filed and that the company is in good standing.
- Know what lenders / trade vendors have filed financing statements (UCCs) against the business. Have copies of them and understand what collateral is secured.
- Keep a one page, smartly worded, easy to understand description of your business.This is particularly important if your business is complex and unique.
- Keep up to date resumes for all shareholders with 20% interest or higher and all key management personnel, especially if management has more domain knowledge then major shareholders.
- Keep a 13 week rolling cash flow forecast if your business is fast growing, cyclical, seasonal, or experiencing a slow down in revenues. Update it every week during critical periods of tight cash.
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