Commercial Banking: It’s NOT complicated!!!

Beginning a banking relationship is very like beginning any business relationship.  To be a good one, the banking relationship must be good for you and for the bank.  They have a basement full of money, but they always will want more.  They want to lend some of that money, but they need the interest they charge to support their operations and profits.  On your side, you want good and timely service, and the opportunity to borrow.

Your bank should be an ally; they should want to help you.  If they don’t seem to be helping, get another bank!!!

To begin, prepare a Personal Financial Statement, using a form from your bank, or from the internet.  This is the bank’s first way to understand your financial circumstances.  It’s very important.

If yours is a new business, you’ll need a Business Plan.  It’s just a narrative describing what you envision.  Add your financial projections for the first two or three years: revenues, expenses and especially profits.  Ask your banker for advice.

If you’re already in business, and need working capital, you’ll want to prepare for that first meeting with the bank.  Bring business tax returns for the last three years, and be ready for questions like “what was this expense for?”  And, they’ll want to know your plans for the working capital loan amount.  Bring your personal tax returns, too.  You’ll probably be required to guaranty the loan, so the bank will need to analyze your capacity to repay, in case the business can’t make the payments.

If you want to buy a building, whether as an investment or to house your business, it’s very like getting a home mortgage:  sign a purchase contract, get an appraisal, show you can handle the payments, and you’re done.  BUT:

The purchase contract will fall under many rules and practices.  It should be negotiated by your attorney.

The bank will want to see the two years of operating history of the property, even if you plan to be the sole occupant.  They’ll need the rent roll and the leases.  They’ll want to know what the operating costs were. This helps the Bank to determine the market value, even before they engage an appraisal.  Note that regulations require the appraiser must be hired by the Bank, not by the Borrower.  Your financial projections will be very important here.  Will you raise the rents?  Will the tenants stay?  Can you reduce the expenses?  How?  Will you hire an outside manager or manage it yourself?

You’re almost done.  Whether your needs are for a transaction account or for loans, you’ve given the bank everything they’ll need.  Now, wait for questions…