BankSpeak
November 15, 2011
Bill McDermott-McDermott Financial Solutions
Looking in the Vault
• How many of you have found banker speak to be
confusing?
• What sorts of bank speak and banker think are foreign
to you?
• How many of you have an active LOC?
• How many have had their line increased in last
12-18 months?
• How many have had bank restrict terms of their
LOC?
Outline
• Trying to speak your banker’s language and finding it difficult?
• Who’s financial health is the issue?, yours or your banks, the
Company “Fiscal”
• Short cuts to getting the financing you need to manage your cash
flow
• Special topics, 30 day payouts, covenant defaults, forbearance
agreements
• What’s your destination, the Financial “GPS”
Financial gps
Company “fiscal”
Bankspeak
Bankers have their own
language …
• Everything is about risk/reward
• Bank reward is 5% gross margin with no upside, therefore risk
tolerance is low
• 5 C’s•
•
•
•
•
Character
Collateral
Cash flow
Credit
Conditions
Who’s financial health is at
issue?
• Do Your Own “Fiscal”
• Do a Banker’s SWOT
• 3 years of financials - analyze them, trends… SWOT….
• Banks want to know about:
•
•
•
•
Liquidity
Leverage
Profitability
Activity
Bankers have their own
language …
• Everything is about risk/reward
• Bank reward is 5% gross margin with no upside, therefore risk
tolerance is low
• 5 C’s•
•
•
•
•
Character
Collateral
Cash flow
Credit
Conditions
Bankers have their own
language …
Where does your company pose the
greatest risk for a banker?
5 C’s•
•
•
•
•
Character
Collateral
Cash flow
Credit
Conditions
Is Your Bank on a Watch List?
• Has it been sold or acquired in the
last 5 years?
• Do you sense your loan is in a special
assets category?
For your bank…
• All banks are high regulated. Because of bank
failures, regulatory environment is tight
• Regulators care about capital adequacy, asset
quality, management, earnings and liquidity
• www.fdic.gov, under quick links, bankers,
institution directory, bank find, name and state
of bank
• Look for capital-asset ratio (8-12%), <1%
problem loans, profitable or not and
loan/deposit ratio >85% is high
Google Alerts…
• If you have a Google profile, you can set up an
email or text alert to obtain daily information
about a bank
Examples:
• PNC insures RBC merger is fast track south from
DC to Atlanta - 11/10/11
• UCB reports net loss of $6.2 million for Q3 2011 10/31/11
• Synovous posts profit after 3 years - 10/27/11
(I post these for you on social media daily)
Gone Shopping?
• How many of you have gone shopping for a new banker relationship
in the last 2-3 years?
• What did you learn?
One of the best shortcuts to finding
financing for your business
•
Find a bank that is profitable, has adequate capital and is
either raising capital, paying back TARP money or both
•
You can’t assume every bank is lending money just because
their doors are open
•
MOU, Consent orders and Cease and Desist orders are public
records, just know where to look (google search-bank name
consent order)
BankSpeak-new loan, annual review
-”anxiety is the price you pay for the
unprepared mind and mouth”
If you find out your bank has a health issue, then I would
suggest having a back up plan. You want to control your
financial destiny, not put it in the hands of your
bank/banker
Prepare and Propose
• For a new loan at a new institution, the bank wants
1. 3 years of financial statements or tax returns
2. Interim financial statement with comparable a year ago (10/31/11
vs 10/31/10)
3. For a line of credit, they will request AR and AP aging, may request
comparable a year ago
4. Personal financial statement and two years personal tax returns
5. Real estate projects or LLC’s will ask for separate financial statement
or tax return, rent roll
6. Contractors (job status reports-contracts in progress, contracts
completed)
Present….
-Presentation to the bank should
incorporate the 5 C’s of credit for
the bank
•
•
•
•
•
Character
Collateral
Cash flow
Credit
Conditions
-Demonstrate you have:
• A Command of your financials
• A Clear request
• A Compelling case
Special situations and
circumstances
• 30 day payout-your commitment letter may require you to
take your line of credit to 0 for 30 days in a year
• Covenant default- you may have accidentally tripped a debt to
worth or cash flow covenant in your commitment letter
If any of these happen…
• Options could be…
• Your bank declares a default
• You enter into a forbearance agreement, you bank agrees to
forbear or delay the close of your business in exchange for
something
• The bank forecloses on your business
• You declare bankruptcy
Your Financial GPS
• What’s your destination? (sale, merger,
esop, milk it for all it’s worth, then close
it?)
• Your CPA, Attorney, Convene chair or
Banker (if you have one) could act as
your guide.
• Covey says “start with the end in mind”
Questions?
www.bankingsolved.com
Bill McDermott
[email protected]
678-597-8184