How to get the business loan you need to grow: it doesn't have to be a painful process.

Have you been shopping in the marketplace lately for a commercial loan or to find a new lender to replace your existing loan officer? To the typical entrepreneur or small businessperson, this experience can be equivalent to a championship Wimbledon tennis match, where you're being served up 110-mph shots and then thrown off balance by lob shots, draining all your energy. Chin up! Obtaining a loan today for your business need not be as painful as passing a kidney stone.

Getting started

Among the most cited challenges by business owners is having adequate capital and establishing and maintaining financing and credit relationships. The banker often counters this dilemma by pontificating that entrepreneurs typically have visions greater than their pocketbooks and overly concentrate on sales, sales, sales as the answer to financial growth, rather than concentrating on financial stability (controlled growth). Prior to seeking a loan increase (even after a loss year), or changing lenders, follow these key critical financial paths to ensure success:

First, establish a top quality financial infrastructure that demonstrates planning for profitable and sustainable growth:

* Monthly and timely internal financial statements. Ensure your Chart of Accounts is sufficiently detailed. For example, instead of Net Sales, start with Gross Sales, and track Customer Discounts and Returns & Allowances, to generate Net Sales. Separately capture Overtime in the financial statement vs. a single line item in Direct Labor. And further break down Indirect Labor from Direct Labor for purposes of breakeven calculations. QuickBooks (or Quicken) may be the current software for your business, but determine if you have outgrown this software application.

* A/R Agings. Keep to a minimum accounts receivable over 90 days (which most banks frown on regarding collectibility). Clearly demonstrate your company's ability to evaluate customer credit risks and ability to collect outstanding receivables.

* A/P Agings. Provide back-up information if over 90-day accounts payable have extended negotiated payment terms and/or payment plans.

* Computerized Inventory Listing. Acknowledge any slow-moving inventories with specific plans to turn into cash--even if at cost or below. Identify slow moving goods by SKU or by product category; separately identify seasonal inventories.

* Keep current on all taxes, including personal property and real estate, Michigan SBT and sales taxes--or payment plans to catch up. Nothing frustrates a banker more than being delinquent on payroll taxes, which can cause the IRS to slap a lien on the company's receivables, or past-due personal property taxes that negatively impact a banker's collectable position on bank secured machinery and equipment assets.

* Offer monthly Pro Forma Projections and detailed assumptions (vs. whimsical thoughts jotted down on the back of a menu), accompanied with a cash budget--including any restructured trade payables. Update by preparing a company budget to actual monthly and year-to-date performance.

* Generate a Customer Backlog (Open Order) Report (when applicable).

* Job Quoting and Tracking. After a completed job is delivered, were there cost overruns? Determine why and implement quoting changes and/or determine production inefficiencies.

* Complete monthly key comparative performance ratios, such as days receivables, days payable, inventory turnover (days on hand), interest burden coverage (ability to cover interest expense) and debt service coverage (ability to cover interest and debt principal reductions)--in addition to the monthly gross profit margin (GPM). All too often the business entrepreneur relegates this task to the CPA who usually does these well after the fact (if at all).

After finding a prospective banking partner who strives to understand your business, remember that banks deserve an adequate return on credit risk and be prepared to pay a fair market rate. Don't drain your management time on searching for the absolute lowest pricing but rather focus on adequate credit line availability and loan structure.

And remember: Bankers can handle adversity. What they can't handle are continual surprises. After securing the credit facility, hold quarterly meetings with your lender with appropriate handout materials that become part of the bank's permanent credit file on your company.

RELATED ARTICLE: Finding the right banker

1. Find a bank small enough to finance your company's particular growth stage. Loan size and array of services offered are important as your business grows. Your best bet might be a medium-size bank, or a specialized division within a large bank.

2. Look at more than the bank's asset size and capital ratios. Base your selection on the experience of the loan officer who will be handling your account, continuity of loan officers and accessibility to senior management. Do not become a training ground for bank trainees who have not yet developed lending credibility before the bank's credit committee system. Conversely, seek younger bankers who appear cager to "incubate" their client.

3. Determine who's in charge Your account officer should be senior enough to have a loan approval authority that accommodates your particular growth stage, or be able to portray the necessary confidence to the bank's Loan Committee.

4. Seek a banker who is open-minded and is not "risk-averse." Quickly determine if the lender is able to analyze your business' needs objectively. The banker should be capable of becoming a confidant. To properly represent your borrowing requirements before a Credit Committee, the banker must gain more than a fleeting familiarity with your business, customers and industry issues.

5. Beware of offers that look too good. The sales pitch from a business development loan officer can be significantly different from what the credit officer can realistically deliver. Banks with money to lend may promise the world: be extremely cautious before plunking down a large, nonrefundable due diligence deposit.

6. Look to your bank as a partner. Find a banker who, rather than giving you money whenever you need it based on the strength of your personal guarantee, will help structure a loan facility that fits your specific needs.

Lawrence Gardner is president of Troy-based Lawrence Gardner Associates, Managerial and Financial Consultants, a member of the Detroit Regional Chamber.

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