Businesses need to prove credit-worthiness to banks
 
The recession has brought standards for small business loans back to what they were in the good old days: based on credit history and ability to repay.
“They need to be able to articulate a sound business plan and strategy for repaying the loan and demonstrate how the loan will improve their business operation,” said Chris Strauss, senior lending officer at White Plains-based Community Mutual Savings Bank, which has five branches in the county. “Managing taxable income can often lead to a circumstance where the available financial information doesn”™t demonstrate the ability to pay back, even though it may be a thriving business, we need to be able to substantiate where the repayments are going to come from.”
The first step to getting a loan is having the businesses”™ financial house in order, “a simple but important step,” said Michael Schiliro, vice president, small business banking, at Community Mutual Savings Bank.
A good relationship with a CPA helps, but the business owner also needs to be informed.
“They need to be pretty well-versed on their financials, not just relying on an accountant or CPA,” Schiliro said. “They need to know what the numbers mean.”
Business owners must also represent clearly how the loan will be used and be able to explain fluctuations in sales and profitability as well as make realistic projections.
“I think there needs to be a reality on the part of the business owners that they have the ability to pay back what they”™re borrowing,” Schiliro said. “It”™s incumbent upon the business owners not just to look to add some capital to their business and think that may fix everything; there has to be realization of what that means. I think a big part of what business owners can learn from this (recession) is you need to prepare and be realistic about what could happen.”
Schiliro said the bank sometimes helps business owners re-think decisions to expand.
“We try to counsel them to think into the future and consider the ”˜what ifs,”™” Schiliro said. “The smart business owners are managing their expenses and looking for ways to maintain or increase their sales and become more efficient.”
Businesses should have a “somewhat pessimistic” multiyear plan that factors unexpected drops in business.
“Whatever advisers that a business owner has, it”™s usually money well spent,” Schiliro said. “If they have proper advisement it helps you better prepare for times like this.”
Schiliro said the bank is a cash flow lender that doesn”™t get repaid with collateral.
“We look to lend to companies that can repay us through cash flow; we would not be a lender for someone who is going to sell assets to repay the loan,” Strauss said. “That also ties into our business model, which is to deal with people that we can have a full banking relationship with. We really like to develop a deposit-and-lending relationship rather than just make a loan to someone as a transaction and not deal with them again.”