But wait... what does that even mean? One would think, "of course my business is bankable... after all, I have a bank account... right?"
The word "bankable" is an industry term used by business banks and bankers to distinguish whether a business can be approved for one or more business bank loans.
It's a crappy term, but it's real and it exists.
As a business banker analyzes a business prospect that is without a doubt the first thought that comes to his/her mind... "is this business bankable?" Or in other words, "is spending time pursuing this business relationship or spending time working with this business owner worth my time? After all the bank I work for has set goals that I have to meet in order to keep my job"
I can tell you from experience because I've been there and done that.
Unfortunately, because I had a sales goal and a deadline, I couldn't spend my time educating the business owner's who needed it the most because I was too busy chasing "bankable" businesses to put into my book of business so that I could meet my quarterly quota/goal.
So then, who helps and educates the "unbankable?"
We do. American Profit Consulting specializes in educating business owners about the financial services world.
Banks and bankers love using confusing and complex language and systems in order to make you think that they're the only game in town and to convince you that they're the only ones that can do what they do.
American Profit Consulting simplifies this all for you.
Now lets go back and answer some important questions that might be on your mind at this point...
1) How does one become or fit in the category of being "unbankable?"
2) If you're "unbankable" now, can you become "bankable" again in the future?
3) Can I still qualify for a small business loan if I NEED financing and am currently"unbankable?"
Lets answer each question one at a time:
Q1:How does one become or fit in the category of being "unbankable?"
A: A business can be "unbankable" for a number or reasons:
1) The industry - Most banks and lenders don't like to lend to industries such as hospitality, gas stations, churches, car washes, etc. These businesses are known as "special purpose" businesses. Unfortunately, in most cases "unbankable."
2) Time in business - Most banks and lenders don't like to lend to start ups. They want to lend to the established business with a history of strong profitability.
3) Profitability - Most banks and lenders are "cash flow lenders." Cash flow is everything in the eyes of traditional banks and lenders. They don't want your collateral. They want to be repaid as agreed and your business' historic cash flow is the single most important factor as to how comfortable they are to lend you money.
4) Credit - Most banks and lenders will lend to businesses who's guarantor or owner has poor credit if they can mitigate or justify the poor credit with strong cash flow or collateral, but BAD credit is a different story. Most banks and lenders won't touch a business who's guarantor has below a 630-640 FICO score. Do you track your personal FICO? It could sway your credit application and if the business has more than one owner one bad FICO could sabotage a credit application. No matter how much cash flow you can generate a bad FICO is usually a good indicator of poor money management.
5) Guarantor strength - Most banks and lenders seek three forms of repayment in the following order of importance: profits turned to cash or cash flow, collateral, and guarantor strength or support. What or who's a guarantor? A guarantor is a business owner, regardless of percentage of ownership, that will sign on an application. I have seen many application be declined because a guarantor had a negative net worth or simply because that guarantor did not have any assets to list on their personal financial statement. As you build your business don't neglect to build your own personal net worth.
6) Poor financials - Most business owners outsource their bookkeeping to a CPA or bookkeeper. This is very common, what is not common is a business owner who holds their bookkeeper's or CPA's work accountable. I can't tell you how many times I've ran across an income statement or a balance sheet that is put together poorly. My first question I ask the business owner once I find this is, "how long have they been keeping your books?" The answer is usually "a very long time or x amount of years." I immediately feel horrible for that business owner because they have been paying that bookkeeper or CPA a good amount of money for years and years of awful representation without even knowing it.
Q2: If you're "unbankable" now, can you become "bankable" again in the future?
I've helped dozens and dozens of business owners with cleaning up their business cash flow and both business and personal credit/FICO scores in order to qualify for a traditional bank loan in a matter of months.
Q3: Can I still qualify for a small business loan if I NEED financing but am currently "unbankable? "
A: Yes, but we may need to be flexible with path but absolutely focused on the destination.
Meaning, we may need to seek out a good alternative lender that can temporarily meet your needs while we work on getting you back on track to being "bankable" and qualifying for traditional debt which we can use to refinance the alternative lender/loan. Think of this as a short term bridge or band aid while you get you "bankable" again.
So there you have it. Just because you've been loyal to your bank and you've known Marge the teller for 23 years and know all of her 14 grandkid's birthdays by heart does not mean that your bank will be loyal back to you at your greatest time of need.
If you would like to discuss this further please feel free to call 619-836-0267 for a complimentary phone consultation.
- American Profit Consulting aka the Bank Whisperer