Acquire Business Loans with the Help of Strong Personal Finances
So you've spent a lifetime building up a sound personal financial history, with good credit and a steady accumulation of assets and you are applying for business loans. With a strong personal financial statement in hand, you go into your meeting with your business banker confident you will have no problems obtaining a loan. While your personal financial performance is certainly a factor, other elements play a role, too. Among other things these include the strength of your business, the quality of the collateral, your personal relationship with your banker and the quality of your credit request presentation. Yet the personal financial statement, or PFS, does play a role in determining business credit decisions. Following is an overview of important points to keep in mind so that you can see how a bank is going to look at your PFS when evaluating the credit worthiness of your business. Assets The most important section on the asset side of the personal financial statement for many business bankers is the current assets section. This part of the statement includes liquid assets that are readily convertible to cash. These assets are important because should the bank need to collect on the loan via the personal guaranty, these funds represent an immediate source of cash that could be used to pay down the business loan. Liquid assets include cash on hand, savings accounts, marketable securities and other assets that are easy to convert to cash. Your personal liquidity plays an extremely important role in reaching decisions on the strength of the personal guarantor of a business loan. Real estate owned is another important factor of the PFS because of its value. Personal property such as automobiles, collectible items and other personal possessions are more often than not largely ignored by many commercial bankers. The value in these items is real, however the practicality of relying on collecting on these items should the need arise is marginal at best. Ownership interest in corporations is often reported by borrowers on their personal financial statements. While these figures do not represent immediate sources of cash, they are taken into consideration. Care should be taken in assuring that the numbers reported here are as accurate as possible. Banks, while generally not ignoring ownership interest outright, will often present net worth before ownership interest as the ownership value can overstate tangible net worth. Liabilities The liabilities section of a personal financial statement contains amounts owed on credit card debt, mortgages, notes payable and installment accounts. The primary focus here is to compare liabilities with tangible assets to determine your tangible net worth. The higher your net worth, the better, and the lower your liabilities in comparison to your net worth, the better, in the eyes of business banking institutions. Contingent liabilites including personal guaranties on other business loans are also taken into consideration. While not part of your personal financial statement, your personal credit report is also a very important factor when evaluating the principals of a business. Among other factors, your credit score, utilization of credit and payment history are taken into account. The commercial bank generally sees your personal financial statement through two lenses when you are applying for business loans. First, the bank views the statement as an indication of your strength as a borrower personally. This is measured through your personal liquidity, your net worth and your credit score among other figures. Second, the bank looks at the statement as a way to ascertain the amount of assets owned that are convertible to cash should the need arise to collect on a personal guarantee. Business loans are often easier to obtain with a strong personal financial statement and a history of paying all credit accounts as agreed. But as mentioned at the outset of this article, your personal financial history is only one of many items that are taken into account. You are welcome to share this report in its entirety and unedited. All links must remain intact. No information in this report should be interpreted as advice, as the report is meant for informational purposes only. |
