Selecting Commercial Banks For Your Business

Banks supply debt financing

Banks supply debt financing. This is the awful truth. They do not want ownership (or equity) interest in your venture. They will only lend you money for working capital or for purchasing fixed assets when they have clear evidence that your firms cash flow can meet principal and interest payments. They will want to know how and when their money will be repaid, and they will usually want some form of collateral to secure their loan.

You should select a bank and establish good relations long before your need for financing growth arises. The sooner you do so, the sooner you will learn what types of loans and how much credit will be available to you.

Select your bank on the basis of your business or financial needs. You can choose some small banks if you would like to open a small card printing business specializing in business cards printing for example; or flyers, postcards and etc. But if you are planning to put up a manufacturing plant for card printing, then that is a different story. You have to choose major banks.

You should also compare the services offered by the bank and get to know the key officers you will be dealing with. At some early point in the growth of your business, assess their willingness to lend you money. Show them your business plan and keep them informed of financial developments. Invite them to see your business in operation during the start-up phase. After you have selected a bank, do all your business banking and personal banking there. Do not split your accounts among banks.

Here are some more types of financing a bank supplies that you might need:

Short-term commercial loans. These are the most common types of loans to small businesses. The loans are for short periods usually for 30-180 days. They are generally made to cover seasonal or other temporary needs for personnel or inventory. Repayment is usually made in lump sum, which includes interest.

Longer term loans. With longer repayment terms up to five years, these loans have a regular repayment schedule, usually monthly, including interest to date, plus payment against principle. These loans are for such purposes as buying fixed assets, equipment, or other items for business expansion.

Accounts receivable financing. Banks will often lend money on your accounts receivable if they are pledged as collateral. You must pay the bank if the accounts pledged are not paid on time. You would still own the receivables and would yourself go after the customer for collection. This type of financing is frequently used by small retail and service businesses for purchasing additional operating inventory or operating supplies.

Other types of financing. Commercial banks will lend money for building construction or improvement and for buying land. The loan is usually long term and is always secured by the asset for which the loans were made.

Banks provide valuable services that will help you expand your business. They can perform credit checks for sizing up potential large customers. The bank can help you develop a financially sound product leasing plan to offer customers if you market capital equipment. Larger banks have international departments that can assist in product exporting or importing. Banks increasingly offer their commercial customers payroll accounting and data processing services at competitive rates.

Finally, your loan officer may prove to be a valuable business adviser in helping you locate sources of additional business, in dealing with overdue accounts, and in setting up your accounting system. Cultivate good relations with your bank and your banker; and you will certainly benefit a lot from the relationship.

by: Janice Jenkins

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