Tips for small businesses on working with a bank

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Small business owners have faced difficult times because of a slow economy. Below are some tips that can help you get ready as you approach a bank.

  • Have a solid business plan, complete with financial projections and competitive analysis. You want to convey to the bank that you know what you are doing.
  • Come up with a backup plan. If Plan A changes, as it probably will, you need to be prepared.
  • Examine every capital purchase that will necessitate additional debt. If it can’t pay for itself, put off the purchase.
  • Create a budget for all income and expenses. As you move forward, make sure to update it regularly.
  • Review your financial position and performance. Ask yourself if you need to reposition yourself to get maximum ROI (return on investment).
  • How is your debt structured? If your long- and short-term debt is disproportionate, it may be possible for you to spread your short-term debt over a longer period of time, increasing your monthly cash flow.
  • Do you have hazard and fire insurance coverage? Make sure you do. And make sure you assess your current coverage. By increasing your deductibles, you can lower your premium.
  • Analyze your life insurance policy. All key personnel in the business should be covered so that your business can continue in the absence of any member of the management team.
  • Create your own personal “board of directors.” Make sure they are people who you respect and can help make difficult financial decisions.
  • Think about the risks involved because banks will want you to guarantee personally that you can repay the money.
  • Talk to your Small Business Development Center and VSBFA experts for help during this process. Be proactive and meet with multiple banks to find the best fit for you. Once you have decided which bank is right for you, begin building a strong relationship. This will help you avoid serious financial problems, and, if any issues do occur, you will be able to resolve them quickly. So be sure to talk with your banker early and often.

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