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BankSpeak

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?

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BankSpeak

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  1. BankSpeak November 15, 2011 Bill McDermott-McDermott Financial Solutions

  2. 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?

  3. 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”

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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?

  9. 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

  10. 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)

  11. Gone Shopping? • How many of you have gone shopping for a new banker relationship in the last 2-3 years? • What did you learn?

  12. 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)

  13. BankSpeak-new loan, annual review • -”anxiety is the price you pay for the unprepared mind and mouth”

  14. 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

  15. Prepare and Propose • For a new loan at a new institution, the bank wants • 3 years of financial statements or tax returns • Interim financial statement with comparable a year ago (10/31/11 vs 10/31/10) • For a line of credit, they will request AR and AP aging, may request comparable a year ago • Personal financial statement and two years personal tax returns • Real estate projects or LLC’s will ask for separate financial statement or tax return, rent roll • Contractors (job status reports-contracts in progress, contracts completed)

  16. 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

  17. 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

  18. 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

  19. 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”

  20. Questions? www.bankingsolved.com Bill McDermott bmcdermott@mcdfs.com 678-597-8184

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