Empowering Small Businesses

As Small Business Week approaches, it is an opportune time to learn the perspective of our credit analysts and the role they play in assessing the financial health of small businesses. This evaluation process ensures that small businesses receive the tailored financial support they need to thrive within our community.

Lyndon Larson, AVP, Credit Analyst Manager, says, “There are three factors community banks like Coulee Bank review when assessing a loan application. We also prioritize the applicant’s business plan, character, and management team.”

Key Factors in Loan Evaluation

The three factors Larson and his team review are the historical and projected financial results of a business's cash flow, collateral coverage, and guarantor support.

The first factor is cash flow. “We analyze tax returns and company-prepared financial statements to verify consistent income to cover payments.” To determine whether the business can manage additional debt, they use the debt service coverage ratio (DSCR) as a metric, aiming for a ratio of 1.20x or higher.

The second factor is collateral coverage. He says, “To secure or collateralize the loan, we review assets like real estate, equipment, inventory, and accounts receivable and apply an advance rate.” Essentially, an advance rate, or percentage of an asset’s value, is like a buffer used as collateral.

The third factor is guarantor support, a third source for repayment on a commercial loan. The guarantor typically has a personal credit score of more than 720, significant liquid assets such as cash or marketable securities, and a high net worth from real estate or privately held securities.

Key Strengths and Common Pitfalls

Larson says, “Successful small business loan requests have strong personal and business credit, consistently positive cash flow, and an experienced management team.” These requests can often explain how the money will directly increase revenue or reduce recurring expenses, and provide a comprehensive business plan, market analysis, and realistic financial projections.

These mistakes can slow down or jeopardize a loan application, including:

Tips About the Lending Process

He says, “Be prepared. Organize updated financial statements, create a detailed business plan with projections, and establish relationships with professionals, including legal, accounting, and banking consultants.” The lending process is about managing risk, not just funding growth. The lending team wants to see specific information regarding how the loan will be used to improve operational efficiency or revenue, reducing the risk of default.

There are a lot of advantages to working with Coulee Bank. “We can provide faster, flexible, and personalized lending decisions based on character and local market knowledge, rather than rigid credit scores or predictive models,” he explains. Key advantages include:

Our credit analysts play a vital role in the loan process. At Coulee Bank, we can offer personalized and flexible lending decisions based on these criteria. Reach out to a banker in your market for more information.