Banking and Finance
Commercial financing
Short-term and long-term options for businesses
Smart Business Dallas | August 2008
Mary Jo Hoch
Senior Vice President
Capital One Bank
Whether the economy is soaring
or stumbling like it currently is,
most businesses must secure some type of commercial financing at
some point to help them grow and compete in their marketplaces — perhaps
more so in a down economy if cash flow
is weak.
Rest assured there are a variety of
long-term and short-term commercial
financing options available to fit any
business’s unique needs: lines of credit,
working capital finances, letters of credit, equipment loans and real estate loans,
just to name a few.
However, it’s not just about the financing, but the bank offering it, says Mary
Jo Hoch, senior vice president of Capital
One Bank in Dallas. Some banks specialize more in serving consumers while
others specialize in handling commercial clients, oftentimes serving as “one-stop” shops for all of a business’s financial needs.
Smart Business spoke with Hoch
about the various commercial financing
options available to businesses and how
they can go about choosing a bank and
preparing for the financing request.
What role does a bank play in getting a
company financing?
A bank can be a direct source of
financing and frequently provides loans
and leases for its customers. Bankers
can also help their customers identify
sources of cash within their own businesses by helping accelerate the cash
collection cycle. Banks also can be
instrumental in helping companies
obtain other types of capital, such as
subordinated debt or equity.
Not all banks are the same, however.
While banks may appear to be very similar, they may actually be quite different
in the way they serve customers. Some
banks specialize in serving individuals,
and others may focus on businesses. In
addition to loans, business-focused
banks generally provide other services
that are specialized for companies.
Changes in technology have brought
many advances to the ways that banks
and their customers work together.
What kinds of commercial financing
options are available to businesses?
Businesses have many commercial
financing options to fit their different
needs. Lines of credit, other types of
working capital finance and letters of
credit are some examples of short-term
financing options. These types of financing usually support accounts receivable
and inventory. Term loans, including
equipment loans and real estate loans,
are typically longer-term forms of
finance. Leases can also be used to
finance capital assets, such as equipment and real estate.
Are there still options for companies with
less than stellar credit ratings?
There are a variety of options for companies that have had some financial difficulties. Usually, there’s a direct connection between a borrower’s financial
history and the pricing and terms of a
loan. If a company’s credit rating is less
than stellar, the interest rate may be
higher and the amount of required collateral may be greater. In some cases, a
borrower may provide alternative
sources of support, such as personal
guarantees or outside collateral. Over
time, as the borrower builds its financial
strength, the bank may be able to relax
some of its requirements that were put
in place when the credit rating was
weaker. If the financial condition is serious enough that a bank loan is not available to a company, there are still other
options to obtain cash, such as factoring
accounts receivable.
How can a company prepare itself for the
meeting with a bank to request financing?
The best thing a company can do to
prepare itself to ask for bank financing is
maintain accurate financial statements.
Much of a bank’s decision about the
terms and features of any loan is determined by the information in financial
statements. A borrower should be ready
to provide the past three years’ financial
statements. Other reports, including
accounts receivable and accounts
payable aging reports, may also be
requested. Providing accurate financial
information and being able to explain
the reasons for a company’s financial
performance help to build confidence
between a borrower and the bank.
MARY JO HOCH is a senior vice president for Capital One Bank in Dallas. Reach her at maryjo.hoch@capitalonebank.com or (972)
855-3909.
