You may have discovered that bankers unintentionally speak a language that business owners have a hard time understanding. I call it BankSpeak. Bankers use terms like liquidity, leverage, profitability, working capital, cash flow, EBITDA and sometimes don’t explain the context or the calculations behind these terms and how they might impact your business positively or negatively. If you’re going to borrow money successfully, then you’ll need to learn to speak their language or get an interpreter.
In BankSpeak, everything is about risk/reward. Banks have a gross profit margin between 4-5%. Therefore, their risk tolerance is low.
When a banker is looking at your loan request, they’re going to looks at your financials first because that’s the language of any business loan. Cash flow is the first thing they look at. They’re analyzing it through 5 C’s, but if it doesn’t cash flow the process is usually over.
- Character
- Collateral
- Cash flow
- Credit
- Conditions, industry or economic
To speak Banker, you have to know which of these 5 things pose the greatest or least amount of risk in your loan request. Whether you have a new loan or it’s annual review of an existing loan, speaking to your banker in their language is likely to make you more successful.
Any presentation you make to your bank should incorporate the 5 C’s and it is your job to have:
- A command of your financials, balance sheet, income statement and cash flow statement. Understand your trends year over year in each of these 3 financial statements and articulate the reasons why they’re up or down. Also, know your debt coverage ratio, EDITDA/annual bank loan payments.
- Have a clear request and loan amount. What’s the money going to be used for and how will it be paid back? This should include interest rate requested, collateral being offered and personal guarantees.
- Make a compelling case to make the loan from the banker’s perspective and yours and incorporate the 5 C’s
Following these guidelines should make you more successful in your search. If you need help with BankSpeak, please get in touch and we’ll be happy to interpret.
