How will a bank evaluate your financials? Are they tougher on trucking?

Discussion in 'Trucker Taxes and Truck Financing' started by jpeters72155, Oct 1, 2014.

  1. jpeters72155

    jpeters72155 Light Load Member

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    I have talked briefly to our bank, Bank of America, about our interest in a loan or extension of a current line of credit. Getting that original small credit line (under $50k) didn't require much, I think maybe just a tax return years ago when I wasn't with the co. The co. is now looking to upgrade its old equipment and can use a size-able loan for 2-4 day cabs, 1-2 sleepers and a few trailers, all used, probably $100k-$300k total. Obviously the more we get the less we'd have to finance with dealerships and the less we'd need to lease.

    They said they'll need to look at income statements and a balance sheet. That's fine, I just want to know if anyone has spoken to a bank or other lenders when looking at a large loan? If so, what can I expect? I know I can simply just go in, meet with them and show them the figures but I'd like an idea of what to expect so we aren't clueless to some of their responses or analysis. It would be good knowing how our co. compares to an average or above average trucking co that's doing similar revenue. These aren't people we know well and can't really just pick their brain for this type of info. We don't interact with them much right now besides a bit on the phone. And yes, I know that has to change. Networking and relationship-building are crucial when you are growing. Like I said, I wasn't with the co. before.

    What are the biggest things they'll look for in the balance sheet? I know they'll want to see a good amount of equity but are there any ratios they'll be using? The only info I have on balance sheets is some info I got from a Peterbuilt lessor. He was looking at $500k in equity to be able to lease 2 semis worth a total of about $270k. We don't have that much total equity/assets right now :biggrin_25513: How much total equity would a bank expect when making a $100-300k loan? Where can I find the average debt/equity of a trucking co. doing $3 million in revenue or any trucking co really? What about profit margin? Our profit margin has been below the industry average of what I believe in 2014 has been around 5-6% since we were struggling a few years ago. It has climbed quickly but is still a bit under.

    Also, will they be looking at non-statement stuff in the business and picking out really specific things like how much we charge for this, how much we make off that, why we've been running old equipment for so long, how efficient our employees are, the education level of management etc?

    If anybody has any info, please let me know. If anyone can refer me to someone who would freely answer some of these questions, I'd greatly appreciate it and yeah we would try to business with them if they are lenders etc.
     
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  3. G/MAN

    G/MAN Road Train Member

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    I have had a couple of lines of credit and the most important thing that they will look for is consistency and profitability. They want to make sure you can service the debt without too much trouble. As I recall, the bank I used had a 10 to 1 ratio. In other words, would lend $10,000 for every $100,000 of gross revenue. Now, that was for an unsecured line of credit. The lender may also make additional funds available that is secured by equipment. Most will expect to see at least a two year history.
     
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  4. Ribeye

    Ribeye Light Load Member

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    Have you tried talking with your tax accountant/CPA, they quite often prepare documents for customers to submit to banks, etc., so they should have some expert knowledge about what is expected.
     
  5. Passin Thru

    Passin Thru Road Train Member

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    We hate BA, bunch of crooked maroons. You need 20K cash and 500K in assets and a rating abv 700 as money is getting tighter if you want lower credit than 6 percent. Probably 10-1 is a good bet but if you have more in assets which could be liquidated....... You know. Go try.

    My banker has a sign on his desk "Just give me a chance to say NO!"
     
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  6. jpeters72155

    jpeters72155 Light Load Member

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    Thank you everyone for the helpful responses. Its been a busy weekend researching equipment so I hadn't got back to the financial stuff.


    You're right and that's why we will probably hire a new CPA. Hes good at what he does but hes never worked with more than a couple trucking companies. Will be on the search for a better suited one.
     
  7. jpeters72155

    jpeters72155 Light Load Member

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    Thank you G/Man. I recall that you've helped me on another thread of mine, I appreciate it.

    That's great to know the 10:1 ratio. Do you know what quality of collateral they're looking for, ie what condition equipment should be in or how liquid it should be, that sort of thing? What other collateral do you think they might be interested in? I'll say right now our equipment doesn't shine like it used to :Cow wagon:
     
  8. jpeters72155

    jpeters72155 Light Load Member

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    Yeah, Chase didn't even respond to my email, didn't call them because I just needed some basic info I got elsewhere. Anyway, are you saying you need 20k as some sort of security deposit or they just want to see that as actual cash aside from your assets? Thank u for the help
     
  9. G/MAN

    G/MAN Road Train Member

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    In my case the lines of credit were pretty much just signature loans that were uncollateriized other than a general way. I have not used a line of credit for several years. As I recall, they could come after any corporate assets had I defaulted. But, they could do that anyway if they were to get a judgment. I have spoken to another banker recently and she told me that the feds require them to do a lot more paprework and that proof of income must be supplied to the bank. They may now require tax returns along with a balance sheet. It can also give the lender some comfort if you can prepare some a pro forma.

    Collateral could be different due to the type of line of credit. For instance, if the line of credit is specifically supposed to be used to purchase capital equipment, then that could serve as your collateral. Depending on the age of your business, they could also require a personal endorsement (co sign the note) so that you will be personally responsible in case of default. Real estate is a good asset to use for collateral. Giving them the right collateral could give you a better interest rate or terms.
     
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  10. jpeters72155

    jpeters72155 Light Load Member

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    Got it, thank you once again G/Man. I'll be working on the financial info and at least presenting it to some lessors.
     
  11. Ridgeline

    Ridgeline Road Train Member

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    Assets. debt ratio, cash flow and P/L statements.

    That's what they look at.
     
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