Small Business Lending Ticks Up?!

An explosion, no; a small tick upward, yes.  Now granted, that may be like you bragging about having more hair than me, however it is still good news.

Below is what Angus Loten said from the WSJ:

“There are signs that more banks may be loosening the purse strings for small firms, as business conditions improve and as borrowers become more willing and able to take on debt.
 

Small-business lending hit a four-year high in November, according to the latest Thomson Reuters/PayNet lending index, for instance. 
 

The total volume of small-business financing increased by 18% over the same period last year, and reached the highest level since Feb. 2008, its latest data show.”

I have seen this anecdotally (which means I am being lazy and not sharing real data) this year alone.

I’m not advocating that everyone rush to the bank to borrow money immediately, however if you have been biding your time and want to purchase equipment, a building or just get some ole fashioned working capital, you should take a peek at what the lenders will want to see from you.

Basics

Here are just a few of the basics that a lender will look at, when reviewing financial statements.

Income Statement

Has the revenue has been growing or at least steady?

Are profits increasing as a percentage of sales?

Balance Sheet

Are all of your assets just old accounts receivable?

Do you actually have some equity?

Cash Flow

Do you have enough working capital (cash at end of each period) to stay in business?

Is there discretionary cash flow?

Now let’s look at more in-depth (and boring) ratios lenders find important.

Key Financial Ratios

Lenders will look at certain numbers in your financials and use them to determine the viability of your business.  They will also compare key financial ratios in your business to other like businesses in your industry, so they can get an apples-to-apples comparison.

Debt to worth ratio – Comparing liabilities and equity.  This shows that you are not all debt and no ownership.

Current ratio – Compares current assets to current liabilities.  This shows that you can pay its immediate debt with no major issues.

Debt service coverage ratio – Compares net income to amount of money you pay on debt.  This shows that you have the ability to pay on debt.

There are a list of other things lenders will look at like your credit score, your industry, and projections and maybe even a business plan.

The TSBDC offers free and confidential one-on-one counseling for existing and start up small businesses. To register for go to http://www.tsbdc.org/.

Other contact information - Phone (615) 230-4780 www.volstate.edu/tsbdc