Getting Your Clients the Financing They Need

In today's competitive climate, many small and medium-sized CPA firms are seeking new ways of becoming more valuable to existing and potential clients. However, these firms often overlook the fact that all enterprises, especially growing businesses, need financing. CPAs are in an excellent position to obtain financing for their clients they are in close contact with their businesses and are aware of the types of internal and external changes that can precipitate financing needs. CPAs who choose to help their clients obtain financing need to create the kind of financing package that will make a positive impression on potential lenders. This article will show CPAs what they need to prepare a complete financing package. It will help them identify the right sources for financing and lists ways CPAs can assist in negotiations between the lender and the client even after the financing agreement has been reached. PREPARING THE FINANCING PACKAGE Success in obtaining a new credit line or increasing an existing one often depends on how a request is made. The right information in the proper format increases the chances of obtaining funds and speeds up a process that often takes longer than expected. Each lender may have different requirements, but there are certain basics CPAs should follow. A complete financing package should include * An executive summary. An executive summary should state 1 . The name and location of the borrower. 2. A brief history of the business. 3. The amount required. 4. How the funds are to be used. 5. Suggested repayment terms or credit line arrangements. 6. The amount and description of collateral offered. The executive summary should be no more than three pages and be easy to read because it is the lender's first contact with the borrower. * Annual financial statements. For credit lines over $250,000, review statements generally are needed. Most lenders require audited statements for credit lines over $1 million. Compilations may be accepted by some lenders for smaller lines, and lines under $100,000 may require additional information based on the lender's requirements. All statements should comply with generally accepted accounting principles and include all required disclosures. The package should include at least three years of annual financials. If the borrower is a group including affiliates, all relevant financials should be included. Also, the CPA should make sure the affiliates share common yearends. * Interim financial statements. Lenders need current information. If the latest annual statement is more than three months old, the CPA should submit an interim statement. * Business plans and background information. For mature businesses not anticipating material changes, a long-term detailed business plan generally is not required. However, the applicant should explain any expected near-term substantial growth or major changes. Background information must fully explain any past setbacks such as a bankruptcy or major lawsuit. Nothing turns off a lender more than discovering problems that wire not revealed in advance. * Projections. The CPA should present the lender with detailed, monthly projections for at least one year, and consider providing annual projections for two additional years. These should include cash flow statements, income statements and balance sheets, as well as any off-balance-sheet financing such as letters of credit. If the proposed financing is secured lending based on accounts receivable or inventory, the monthly borrowing/collateral position should reflect how the money borrowed will fluctuate through the year and show that the collateral, at proposed advance rates, covers the loan at all times. A practical point to consider for seasonal and highly leveraged businesses is the intra-month peak requirement. This is particularly important in the case of asset-based lending and revolving credit lines. …