We all know that banks are highly sensitive to risk and are, therefore, often reluctant to lend money to small business. But, there is a key to get a loan that is through organizing the venture properly. If it is able to get such a loan, a small or medium size business should have the person in charge of the finance function keep in close touch with the bank. It’s also sensible to see a banker periodically (as often as once a month) and send the company’s financial statements so that the bank continues to supply funds when needed.
The amount that a business can borrow and for how long will depend on the kind of business it is and how quickly the merchandise purchased with a bank loan can be resold or used to generate funds. For example, a farmer going to the bank to borrow funds for seed, fertilizer, equipment and other needs. The farmer may buy such supplies in the spring and pay them after the fall harvest.
It is important for people in finance and accounting department to do a cash flow forecast. Anticipating times when many bills will come due, a business can begin early to seek funds or sell other assets to prepare for the crunch. Other than that, it is also important to keep friendly and close relations with his or her banker. They may spot cash flow problems early and point out the danger. Or the banker may be willing to lend money in a crisis if the business person has established a strong, friendly relationship and on openness, trust, and sound management practices. It’s always important to remember that your banker wants you to succeed almost as much as you do. Bankers can be an invaluable support, especially to small, but growing businesses.
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