Borrowers Often Fall Short of Competence Lenders Need

By Charles H. Green

We’ve all been there before – get to working on a promising loan application with all the right signs. Inevitably the talk turns to financial projections and the borrower starts changing the subject. It takes a while, but finally you corner them to admit they “aren’t too good with numbers.”

What does that mean? It’s not rare to be handed financial statements prepared by a CPA, imagesCA0FFK0Iand still sealed in an envelope that delivered them months before. An uncomfortable large number of business owners simply try to drive the financial side of their business based on what their checking account balance is. If it’s positive, they must be profitable, right? So the theory goes.

I contributed an article to Entrepreneur Magazine recently to raise this point directly to the folks that need to see it: small business owners. Over my lending career I’ve learned that many small-business owners have an astonishingly low understanding of basic accounting. Some cannot distinguish cash flow from profitability.

Compiling, tracking and analyzing financial results is the most tedious part of business ownership, but it’s necessary in order to establish that a business is working as it should. Beyond profitability, it’s vital to understand the relationship between revenues and costs as well as expenditures and receipts. Great products don’t have much value if you can’t sell them for a profit.

The bottom line for them: if you don’t have and understand you financial metrics, you will forever be blocked from bank funding. Count on it.

Read more at Entrepreneur.



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One Response to Borrowers Often Fall Short of Competence Lenders Need

  1. Albert Augustine says:

    I still say if you want to earn your fee plan on doing your own work. If you have to depend on someone else’s work and I don’t care if it is a CPA you’re out of your mind. If you depend on the compilation work of others your conclusions and work are worthless.
    What is so blasted, hard in preparing your own projections, comparing them to good study guides in determining the weaknesses and strengths of your projections. If this business person could do the work that you suggest they do, why would they need you?
    If they have this capability they would just go to score, prepare their own business plan and projections. Ultimate conclusion; they get the money without needing your services. Allow me to make a suggestion do your own paperwork, check everything and verify it. Over the years a good portion of my clients were referred to me by bankers. They knew I was meticulous in my loan preparation and there would not be any surprises.
    The very fact that many of you are surprised that the clients do not have good accounting procedures and knowledge amazes me. I’m beginning to believe that many of you but not all, who post questions do not even have a transaction to discuss they only want to be able to post something and get their name listed. My reason is simple they never offer solutions that anyone’s else’s problem or come back and thank anyone for their help in closing their transaction.

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