Volunteer with SCORE, a free business guidance
institution, Marcia Theusch talks about the importance
of having a business plan when speaking with a bank
Tuesday afternoon at Dunn Bros. Coffee in West Bend.
John Ehlke/Daily News
people in the community know Craig Farrell as the West
Bend Area Chamber of Commerce's executive director,
providing resources and advice to member businesses.
Before that, however, he was a business owner, operating
a tour company that provided an excursion for those who
wanted to escape the monotony of their daily activities
— and Farrell leverages that experience to assist those
who manage their own enterprises. That includes securing
financing to begin or expand their operations.
were a tour operator and we needed a loan because we
primarily ran ski tours,” Farrell said. “We had very
high volume of business during the months of October to
April of each year, but that is all the revenue that
came in and revenue would be going out, of course, as
you were paying hotels and bus companies. We had reached
a point where we had to reserve, in size, so many hotel
rooms in Aspen (Colorado), Vale (Colorado) and so on,
and they (lodging companies) started asking for large
deposits for the next year.”
Farrell added hotel companies needed to even out their
revenues throughout the year. Rather than receive money
to fund their operations from a handful of months, they
wanted to generate money during the remaining times to
fund their operations. That is the reason they began
demanding deposits to place holds on rooms for guests
staying in the future.
Farrell and his fellow proprietors could not pay in
advance for the clients’ hotel stays, so they opted to
finance that part of their operations — a choice many
entrepreneurs make when faced with a shortfall.
Farrell, it was a straightforward decision. He knew the
banker working at the institution.
had been working with this bank for many years, and we
had a banker who handled our accounts so there was a
relationship, which is part of the key,” he said.
Banks and financial institutions base their decision for
providing loans on one fact: Will the money they loan to
their clients be paid back and be appropriately
compensated for it?
make that decision, they obtain various information from
clients to generate models that calculate the
probability of receiving those payments.
Scott Heine, a business development officer from
Educators Credit Union, said they evaluate a company's
finances. He and his colleagues will review the income
statement, the balance sheet. They will also ask for
are going to look to see if they have one,” Heine said.
“You would be surprised the number of businesses who
come to us looking for a loan, even though they might be
in operation for a number of years, they haven't had the
will examine not only the revenues and expenses, but
also the amount of debt the firm's operators has on
their books. They want to know if company leaders owe
more money than they can reasonably expect to pay back.
secure a loan with favorable terms, business owners may
need to provide security — or collateral — the bank can
seize in case the loan goes into default. The stronger
loans have significant assets they use to guarantee the
loan, which leads to more favorable terms.
you are talking about commercial real estate you are
talking about the building,” Heine said. “Then you are
talking about the amount of equity that might be in that
building already, or looking at the liquid assets the
guarantor might looking to put against that loan.”
Creditworthiness is another factor. Those with a strong
credit score will likely receive more favorable terms
because they have demonstrated they understand how to
manage their finances.
amount of documentation is significant. Chris Jenkins
from BMO Harris listed several required to prove the
business is real.
depends on the type of business, but we need to
authorize that it is a legitimate business,” he said.
“Obviously we need to know if it is a limited liability
company or if it is incorporated. I need the documents
for that. We also need to show ownership or if they have
a stake in the business.”
Jenkins listed others that include tax returns and proof
of assets. The business side includes a history of
operating expenses and revenues. Bankers may also
request a financial projection for several years into
Marcia Theusch from SCORE, a volunteer organization that
assists business owners, suggested setting aside a
couple of months to prepare the necessary documentation
prior to asking for a loan. Entrepreneurs can use that
time to make a business plan to present to loan
“They are going to look at your business idea, your
experience in the field, your financial projections, how
you project cash flow and if they are realistic, if they
are what you say they are,” she said. “Projections are
just that — projections.”
also suggests speaking with several institutions for
loans because they vary in their terms and the types of
businesses they fund. Some specialize in retail while
others provide money for manufacturing.
persistent and do your homework,” Theusch said.