Positioning Ourselves to Obtain a Loan – Good Recordkeeping Presenter: BB&T Organized by: Development Corp of Columbia Heights (DCCH)

2 Agenda How Bankers Assess Loan Applications Credit Score Benefits of Banking Benefits of Proper Recordkeeping (Information Only) Benefits of Filing Tax Returns (Information Only)

3 How do Bankers Assess Loan Applications? Banks assess applications by putting different weights to each of the following criteria: Purpose of loan Do they understand their business and market place Management What credential are there to help organization Credit Score (Brief Discussion) Historical credit history Financial position Will organization be able to pay back loan Collateral Do you own assets; personal home, equipment, personal guarantee, accounts receivables, contract revenue streams

4 What Do Credit Bureaus Say About You? A credit score reflects your credit risk level between 300 and 870 What should you include in your credit request? SS#, DOB, Name, Address, Previous addresses (past five years), Current employer Phone number & Signature Where to get your credit score? Recommended: Only authorized source for free annual credit report Report detail is free however credit score will cost $10 Note: NOT FREE Credit Bureaus: Equifax Credit Information Services PO Box Atlanta, GA Experian National Consumer Assistance Center PO Box 2002 Allen, TX EXPERIAN ( ) TransUnion LLC Consumer Disclosure Center PO Box 1000 Chester, PA

5 How do Bankers use Credit Score? Determine amount allowable to borrow Determine interest rate how much risk a client will present to the bank Determine amount of collateral required

6 Financing your Operations through Debt (Information Only) Research Local Banks Establish a banking relationship Find out what products and services will suit your business needs Find out how the bank evaluates loan packages Take a Small Business Finance Workshop Apply for a business loan well in advance of when you will actually need the capital. As a rule of thumb, you should be prepared to contribute as much as 30% of these costs from your own finances. Courtesy of the SunTrust Small Business Resource Guide

7 What will Lender be Looking for? Lenders will want to see the following questions answered: Who are you? How much do you need? How are you going to pay it back? What happens if you can’t pay it back?. They will be looking to the Five C’s of Credit to make their determination: Capacity – your ability to repay and the most important factor to the lender. Capital – lenders expect to see that you have taken a personal risk. Collateral – If you cannot repay the loan, the lender needs to see that there is a second source of repayment. Conditions – what do you intend to do with the money and how could the local economic climate and conditions in your industry impact your business? Character – you and the impression you make on the loan officer. Styles and required sections change by business and by lending agency.

8 What are the Benefits of Banking? Earn interest on your money Free Business Checking accounts can reduce your operating expenses and simplify your recordkeeping Receive financial advice regarding investments and managing debt Protection from Fraud Local Level decisions are made to allow for quick responses Online reporting tools enables you to monitor transactions and view statements via the Internet Payment processing solutions help you serve your customers with speed and accuracy while enhancing your efficiency and productivity Opportunities and Solutions for managing cash flow Cheaper Means of Sending Funds Overseas vs Western Union Cheaper Payroll Cash Checking References

9 What are the Benefits of Good Recordkeeping? (Information Only) Monitors your business success (You will be able to answer questions such as: How much is my business earning each week? What were my expenses last week, month, or year?) (Good recordkeeping enables you to identify changes you need to make in your business to be more successful. For example, if you eliminated unwanted services or products, which did not sell, you could increase your profits.) Identifies your sources of income (You may receive money from many sources. Good record keeping helps you identify and separate business and non-business income; and taxable and nontaxable income. For example, good records will allow you to distinguish between the $500 birthday gift that you deposited, which is not taxable, from the $500 tip income you deposited, which is taxable.) Courtesy of the Internal Revenue Service

10 What are the Benefits of Good Recordkeeping – Continued? (Information Only) Identifies deductible expenses (Regardless of your employment status, you may have deductible expenses that could reduce your taxable income. A good recordkeeping system will help you to identify and document these deductible expenses throughout the year. Without an accurate record keeping system, you risk losing the benefit of a business deduction. Helps to accurately prepare your tax return (A record keeping system supports the income, expenses, and credits you report on your income tax return and promotes accurate return preparation. Without good record keeping, you may overlook taxable income, deductible expenses, or tax credits to which you are entitled) Courtesy of the Internal Revenue Service

11 What are the Benefits of Good Recordkeeping – Continued? (Information Only) Supports income, expenses and credits reported on your tax return (You must keep records to support all items shown on your income tax return. If the IRS examines any of your tax returns, you may be asked to explain or verify items you reported. If you are unable to present the required information, you may be subject to payment of additional taxes and penalties.) Courtesy of the Internal Revenue Service

12 What Types of Records should I keep? (Information Only) (It is recommended that you keep business and personal funds separate) Business income records: 1. Bank deposit slips and bank statements 2. Credit card charge slips 3. Appointment book/calendar 4. Receipt books Business expense records: 1. Invoices / Receipts 2. Cancelled checks 3. Sales slips 4. Credit Card receipts Courtesy of the Internal Revenue Service

13 What are the Benefits of Filing Tax Returns? (Information Only) It is a crime not to file a tax return Tax deduction benefits to business owners: Good recordkeeping systems can reduce your taxable income Good recordkeeping helps to identify many qualifying deductions and tax credits that will lower your tax Courtesy of the Internal Revenue Service

14 Thank You Questions?