The following is a summary of the presentation made by Brad Bush from Riddell National Bank to the First Thursday Business Group (1/6/11) in Terre Haute (IN) on the topic of Small Business Lending and Banking:
• Contrary to popular and media belief, there is still money available to lend. Many banks are eager to loan money to qualified applicants. However, the credit analysis has become more stringent and certain industries are being analyzed with increased caution. Those industries include but are not limited to construction, real estate, and automobile dealerships/floor planning.
• Business loans are available for a variety of purposes including but not limited to equipment purchasing, real estate purchase and refinance, and lines of credit.
• Commercial lines of credit are a viable source for temporary financing but are not intended to be permanent solution to any borrowing need. Commercial lines of credit also must be paid to a zero balance at some point during the 12 month term of the line. They can be secured with real estate, equipment, accounts receivable, or a combination of any of the three.
• Commercial real estate loans can be extended to a customer so long as the loan amount does not exceed 85% of the appraised value of the real estate.
• Small Business Administration (SBA) loans are available to qualified borrowers. An SBA loan is a partnership between the bank and the Small Business Administration. All payments and questions are directed straight to the bank representative.
• Cash flow is the predominant factor in analyzing a commercial loan request. In years past, collateral was the predominant factor. In today’s market, banks must have adequate cash flow regardless of the value of the collateral. An acceptable cash flow ratio is 1.20. This ratio, called Debt Service Coverage, means that for every dollar of debt, $1.20 must be earned to repay that debt.
• Fees of a commercial loan vary based on the collateral and the loan amount.
• To get started with a commercial loan, a business owner needs to gather three years of business and personal tax returns, a personal financial statement, a profit and loss statement for the current year of business, and a business plan.
• Business planning is imperative. A moderately successful entrepreneur will become a very successful business owner with the creation and execution of a detailed business plan with three to five year income and expense projects. The Indiana Small Business Development Center on the campus of Indiana State University is able to help with such an endeavor.
Bradley A. Bush
Business Development Officer
Riddell National Bank
2129 S. State Road 46
Terre Haute, IN 47803
Ph. (812) 877-4635
Fax (812) 877-4621
Cell (812) 249-1719