Fresh Thinking: Insights + Resources

Information Created to Address Your Business’s Top Challenges and Concerns. To Spark Transformative Thinking and Problem Solving.
May22014

Maximizing Operating Cash Flow with Commercial Loans: What Banks Needs to Know

small business

In today's fast-paced business world, companies rely on operating cash flow to handle fluctuations in growth, take advantage of supplier discounts and meet production challenges as they arise. One way to access additional cash funding is through a commercial loan. Applying for a loan may seem like a daunting process, but business relationship banking managers are trained to work with companies and can suggest different loan products to best meet client needs. To do so, banks need to understand a company's current financial position as well as its overall business strategy and plan for growth.

Current Financial Position

Prior to approving a small business loan, banks will request a company's financial statements for analysis. In particular, banks want to know if a company is meeting current debt covenants. In addition to financial statements and recent tax returns, banks will ask for a business credit report as part of the loan application process. Before turning data over to a business banking manager, management should review the company's financial position and be prepared to clarify the information reported.

Banks also may request the personal financial information of the company's owners or partners, such as personal tax forms, for review - especially if the owners are heavily invested in the business. Statements of company cash flows also will be analyzed to determine if a company is falling short each month and what accounts for those shortfalls. For example, does the company need extra cash to help propel extreme growth or is management facing an inability to collect on unpaid accounts?

Projected Growth

In addition to current financial information, banks want to know where the company is headed in terms of growth. Financial planning is an important facet of any business and a key to future success. Company management should take the lead by setting tangible, long-term strategies along with formulating concrete plans of how they intend to achieve profitability and growth targets. Management also should incorporate the requested commercial loan proceeds into their financial projections to show a bank how the added funding will contribute to the company's operating cash flow and lead to higher profits and growth.

Company Strategy and Industry Specific Information

Beyond solid financial data, company management should have a clear understanding of their overall mission prior to applying for a commercial loan. The company's purpose and growth strategy may be expressed in qualitative terms, but management should demonstrate focus and expert knowledge of their product and be able to communicate their vision to a banking relationship manager.

Intangible items, such as company reputation or a unique product, can play into a bank's decision to approve a commercial loan. If management believes their company's focus on customer satisfaction or a superior quality product sets them apart from competitors, this information should be noted during an interview with the bank. Additionally, discussing whether product sales are seasonal or cyclical can help explain fluctuations in operating cash flow.

Banks offer commercial loans to help businesses succeed. By forging a trusted working relationship with a bank, companies achieve their goals of growth and profitability by using term loans to meet cash flow needs.

Photo Credit: Flickr

 

You also may be interested in:

Five Tips For Getting Your Small Business Loan Approved