The Ideal Bank Loan Customer

Advice on banks lending to small businesses

By Mark Johnson
Originally Posted: June 17, 2010

This has been a very busy week for me meeting with bankers and discussing the current bank lending situation here in Phoenix.  The bankers I talked to — both large and small — here in Phoenix made the following recommendations when I asked them what they look for in the ideal loan customer.


  1. Have a plan of what you want in terms of the loan size and structure and be prepared to defend your request. This shows the lending officer that you understand the need for the loan and how the cash flow impacts your operations.
  2. Have a current set of financial statements, complete with a balance sheet and the income statement (P&L) and supporting subsidiary schedules for accounts receivable and accounts payable.  You get bonus points for having a cash flow statement and/or a budget prepared.
  3.  Be prepared to discuss your fluctuations in earningsaccounts receivable and general operations and any other outstanding debt.  Also, make sure you’re prepared to discuss gross margin percentages, breakeven volume and EBITDA — earnings before taxes, interest and depreciation and amortization.  Additional points are awarded for anyone who can articulate why their earnings changed and how they plan to improve on their previous levels prior to the current economic downturn.
  4.  Understand the business risks related to your specific industry as well as how the current economy and markets will impact future performance.  Be prepared to discuss how your product or service is superior to your competition and why you will succeed in the marketplace.  Also, understand any regulations or technologies unique to your industry.


Banks are only lending to those companies and organizations that have a positive cash flow, a history of earnings, good collateral — accounts receivable or inventory — and a favorable future earnings trend.  Banks have money to lend but fewer businesses to lend to in the current economic and regulatory environment.

Finally, a good finance professional such as the controller or CFO helps to instill confidence in the bank and loan committee. It shows that the company is well controlled financially and is committed to a long future with proper financial controls.

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