Financing Your Business Keys to Understanding Your Banker
Everyone needs a banker….
You might not be understanding your banker if…
Supporting Information Balance Sheet Income Statement Cash Flow Statement Tax Return Legal Documents Business Plan
Cash vs Accrual Accounting “Cash may be king but cash basis accounting can too often be its assassin.” - Dr. Donald J Jonovic
6 C’s of Credit Character Capacity Capital Cranium Collateral Conditions
Character (credit history) Credit report Public records Credit reputation
Capacity Repayment ability Banker Talk… Fixed Charge Coverage Debt Service Coverage Interest Coverage Funded Debt/EBITDA EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Capital Liquidity Equity Banker Talk… Current Ratio Funded Debt to Capital Owner Equity
Cranium (aka Common Sense…) Does the story match the book?
Collateral Real property Chattel Assignment of contract Guarantors Unsecured Banker Talk… Loan To Value Loan To Recovery Value Lien Position
Conditions Factors with potential to influence repayment ability Banker Talk… Financial Covenants Affirmative Covenants Negative Covenants Reporting Covenants