When someone is potentially willing to lend you money, it’s not because they like you. Hopefully, they do like you, of course. But whether a lender likes you or not won’t have much of an influence on whether you receive a loan.
That’s because business loan decisions are made on facts and data to ensure the borrower is in good standing. If not, you may be seen as a risk and a lender will not approve your application.
Again, it’s nothing personal. It’s just business. So, what can you do to minimize that lender’s risk and maximize their comfort level with you and your business? The best thing you can do is to just be prepared – and know these three things.
- Know Your Debt Service.
One thing a lender has mind when evaluating a potential client: their ability to pay back a loan. In the end, a lender can provide you with financing, but it will be up to you to use that money to its maximum advantage. No one will judge you, just so long as you’re able to pay back the money you borrowed.
This is why, before entering a financing agreement, a lender will always evaluate your debt maintenance. You will be asked to show your historical cash flow—the amount of money you received vs. what was paid out—for as far back as you can. Your lender will ask you questions about this performance and whether it can be sustained. You will also be asked to project future cash flow and your lender will challenge these projections too.
All of this is to prove that you will be able to service your debt. You will be asked to prove that adding a monthly loan repayment will be covered. If a lender isn’t comfortable that you can do this, then it’s less likely that you’ll receive the financing. Be prepared to demonstrate that whatever amount you borrow, your business is healthy enough to pay it back.
- Know Your Financial Statements.
Cash flow is a critical part of your financial story. But there are other important numbers that a lender is going to want to understand. The question is: Do you understand them, too?
A lender will ask for a balance sheet, which is a snapshot of your financial position (assets, liabilities and equity) at a given time. You will be asked to provide historical income statements that show revenues and expenses for the past year or two or three. You will be asked to explain why certain expenses or revenues have gone up or down. You will be asked why assets and liabilities have fluctuated. Before lending you money, the lender will ask if you owe money to anyone else. You’ll be questioned about your inventory, your equipment, the collectability of your accounts receivable, and your ability to satisfy your trade payables.
Your lenders are financial people, and your financial statement is the script that they use to perform their jobs. They live in a world of numbers. They don’t expect you to be as expert as they are on financial data—but pretty close, particularly when it’s your business that they’re evaluating.
So, learn about your financials. Take a class, or go through them with your accountant. Be familiar with these numbers. Business is math and math is financial. Your road to better financing will be much smoother if you’re familiar with all the financial signs.
- Know Your Business.
As important as they are, your financial statements don’t tell everything about your business. They’re just a picture of your past and by the time they’re prepared and reviewed by a lender, they’re probably out of date with current events. Even when current, a financial statement is missing important elements about your story.
For example, who are your best patients? What services are you planning to offer in the future? What’s in your pipeline of potential opportunities? Who is your competition? How big is your market now? Where do you see the market potential for your practice and services? What key people currently work for your company? What new hires do you have planned? How good is your location? What are your planned capital acquisitions?
A lender can’t get this information from your financial statements. The only place to learn all of this is from you. You’re the owner. You’ve got the answers. You’re the person with the big ideas, the grandiose plans, the strategies and the blueprint for the future. A good lender will look beyond the financial information and focus on the person who’s asking for the money.
This is where you can shine. Once you’ve proven that you can service the debt and that your financial position is secure, then you can paint a picture of your professional future. You get can get your lender excited about what’s to come.
If you want to instill confidence in your lender, then be able to answer these questions or explain the very intricacies of your business and your strategy—this will help boost their likeliness to do business with you.
In the end, financing is a business and the best deal you can do with a lender is one that will be profitable for both of you. To accomplish this, you must put yourself in the same frame of mind for when you’re treating patients. You’ve got all the answers for them, right? So, why not for your lender, too?
This article is the point of view of Gene Marks and does not represent the opinion of Bankers Healthcare Group.