Position your business to access capital

Is business expansion on your mind? Thinking about developing a new product, moving into a new market, or adding to working capital for continued growth?

If your business has a fine-tuned operating model and proven ability to generate profits, you could be ready to finance growth here and abroad:

• Domestic expansion – Growing demand requires more product production along with an increase in working capital. A credit facility that considers your sales and cash conversion cycles might be able to offer your business a line of credit, secured by receivables and inventory.
• International expansion – If you want to sell or source globally, you’ll need to invest in infrastructure for currency exchange, international wire transfers, and Exim Bank (Export-Import Bank of the United States) transactions.

An increase in demand may require your company to purchase new equipment, lease more space, and upgrade technology. With low interest rates, now might be a good time to plan capital investments and explore conventional, real estate, and SBA loans or lines of credit. 

How will you persuade a bank to support your business plan? Lenders want to understand your company from the ground up before approving a loan, so you’ll need a well-documented narrative that substantiates your goals with hard numbers.

Provide solid financials.

Before offering credit, your lender must assess your company’s financial health. As your access to credit increases, so will your banker’s expectations. You’ll need to provide:

• High-quality financial statements – Regular and detailed financial statements require more time and expense. As your company adds debt, your lender will want access to business reports, including budget variances and aging schedules.
• Expense control – You’ll be expected to show that you have a thorough understanding of fixed and variable overhead, along with major expense categories like operating costs, sales expenditures, and marketing.
• Debt service – Demonstrate a firm grasp of your company’s debt capacity by highlighting cash flow coverage for your obligations—historically, currently, and at increased debt levels. Be ready to discuss whether future profits will be withdrawn or retained within your business.
• Receivables and inventory – Know the quality of your receivables, like your customers’ financial strength or your company’s experience handling bad debt. Strong management of your inventory and accounts receivable will show your ability to quickly turn them into cash.

Build a compelling case.

Before providing your company with capital, bankers want to see a business plan supported by facts and details, not just ideas. Could you use funding to shore up finances or fuel expansion? Will you take advantage of short-term opportunities? How will you overcome obstacles?

Be sure to include:

• A detailed overview of the past 12 months
• Projections for the next 12-18 months that indicate how your business will react to shifts in the economy, market, costs, and operations
• An assessment of your competition and its future endeavors, along with your potential responses
• Your goals and long-term plans for your business, like acquiring partners, selling, or turning operations over to designated successors
• How your company plans to respond to unexpected events, like the loss of a major contract or a new competitor

Showing you’re prepared for any situation demonstrates the kind of business maturity that impresses lenders.

Your track record is just as important. No banker expects perfection but let them know up front about any of your past financial issues. Describe how you resolved them and repaid your creditors. Being transparent about your shortcomings builds trust between you and your lender and may contribute to your company’s credit approval.

Leverage your banking relationship.

Once your banker fully understands your company, you’ll be in an excellent position to access the credit you need to grow your business.

Remember, a banking relationship is a two-way street. Get to know your lender and other members of the banking team. Ask them for advice before you need capital and recognize that a bank views your working relationship as a long-term investment beyond just a single product or service.