Best Practices Preparing for a Loan Mickie Nuss FampM Bank Sara Meidinger Bank of Stockton Thursday November 2 nd 2017 Dos Bring everything the Banker needs Tax Returns ID: 658786
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Do’s, Don’ts & Best Practices Preparing for a Loan
Mickie Nuss – F&M Bank Sara Meidinger – Bank of StocktonThursday November 2nd, 2017Slide2
Do’s
Bring everything the Banker needs Tax Returns last three years – both personal and business (if available)Prior year financial results for income & expenses
Balance Sheet businessPersonal Financial Statement
(PFS)
Current Annual
Farming Budget Slide3
Cash based vs. Accrual based
Cash Based StatementsTax ReturnsDoes not include many items required by the Bank Typically under/over state income or expensesDoes not accurately report working capital and net worth
Accrual Based Statement
Much better and typically required by banks
Includes Accounts Receivable, Accounts Payable, Inventory, Cash Invested in Growing Crops
If you don’t prepare Accrual Statements – Banker can help youSlide4
Working Capital What is
Working Capital = Current Assets - Current Liabilities Current Assets Cash – Money in the Bank Account Receivables – Money people owe you
Cash Investment in Growing Crops – Money already spent on next years crop Current Liabilities Accounts Payable
– Money you owe people
Balance on Operating Line
– Money you owe the bank
Other Accruals Payables
– Money you owe your employees, govt., PG&E, etc.Slide5
Working Capital (cont.)Why is working capital important?
Banks use working capital to determine if they can lend you more moneyBanks want to see positive & large working capital Purchasing equipment using cash erodes working capital
Purchasing equipment using operating lines of credit erodes working capital Slide6
Do’s (cont.)
Know Amount of the equipment – copies of invoicesTimeline for the purchase – when do you need the $$Understand Working Capital
and impact equipment purchases have on it Slide7
Do’s (cont.)Budget needs to show that you can
repay the loan Make sure properly financed – term of loan, timing of payments Understand important terms;interest rates – fixed or variableRepayment
– monthly or annual payments leasing options – tax vs. capital leaseSlide8
Don’tsPurchase equipment solely to avoid paying taxes
My motto - “make as much money as physically possible and pay taxes”Ask for loan on Dec 24th – Banker needs time Erode working capital by paying for all equipment with CASH
Use operating line of credit to purchase equipment – BADSlide9
Best Practices Communicate with Banker constantly
During annual line renewal – request a “Capex” equipment line What is this? Show Banker why new equipment is needed/justifiedIf you have questions – go see your Banker
Make your Banker buy you lunchSlide10
Questions?
Mickie Nuss
– F&M Bank, 209.367.2444 Sara Meidinger – Bank of Stockton, 209.340.2310