Financing Your Business Keys to Understanding Your Banker.

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Presentation transcript:

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

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