The Bank for International Settlements estimates that U.S. bank holding companies gain the equivalent of a $300 billion subsidy by these policies. In other words, the implicit guarantee of the reforms have enabled the TBTF banks to take more risk, including commercial lending, even while their Main Street counterparts (i.e. community banks) are struggling to conform to the new regulations that stem from the same reform law.
Still the blue suits, who live mostly on commission, have to be lending to someone, right? So, what are they looking for? Well, you wouldn’t be surprised by the criteria. They are looking for a recent record of growth in revenue and profit. They will look at your projections to see how you will pay the loan back. And more importantly, they want to see that you have control over your business. In fact, if you haven’t implemented Enterprise Resource Planning (ERP) software, they may require it in the covenants to the loan agreement.
Your CFO should be able to help you implement these new controls and reports. And, trust me, your bottom line will benefit if you take these internal procedures seriously. In other words, it’s not just the CFO’s responsibility. For these controls to work, you have to be the prime mover. Leadership comes from the top and, if you own the business, you’re at the top.
If you’re not big enough to afford the additional six-figure compensation package that a good CFO will demand, you might consider a fractional CFO. There are many firms that offer such services including my former partners at The SCA Group.
There is a lot to overcome if you need expansion capital. But it can be done. It will require a lot of work. However, if you somehow managed to survive the recession, it will seem like a walk in the park.
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