 | Newton Male
is Chairman of the Board of Prairie State Bank of Augusta, KS, with 12 branches in the Wichita area, a position he has held since 1983. He also currently serves as a Director for Western National Bank of Lenexa, KS and the First National Bank of Medicine Lodge, KS and Overland Park, KS. Previous positions held include two terms as Kansas State Bank Commissioner, President of Prairie State Bank, and Assistant Examiner for FDIC. Professional and community involvement comes second nature to Newton. Currently he is on Federal Affairs Committee of the Kansas Bankers Association, Director of Augusta Progress, Inc., and a member of the Augusta Historical Society and the Augusta Chamber of Commerce. In the past he has been very active with the Wichita Area Girl Scouts, Augusta School Board, Mayor of Augusta, Kansas House of Representatives, various positions with the Kansas Bankers Association, American Bankers Association, Butler County Community College Endowment Association, as well as Director positions with several other area banks. Newton has also done extensive work in Russia teaching Russian bankers how to deal with their banking crisis. This endeavor was sanctioned and performed in tandem with the Financial Services Volunteer Corps of New York and the US Agency for International Development. Newton can be contacted at the Prairie State Bank, 512 State Street, Augusta, KS 67010, by phone at (316) 775-5434, by fax at (316) 775-1790, or by e-mail at nmale@prairiestatebank.co |
Banking & Finance
2001-09-01 11:37:00
Starting a business?
Question: I am 52. I will have been employed by the same employer in the aircraft industry for 30 years this coming September. While I do not have any interest in just sitting around, I would like to retire at that time, then start a business out of a hobby I have had for a good many years. My wife has been a homemaker for the most part. The kids are gone and doing well. She is anxious to be a part of this endeavor. What are the things we need to do in order to get bank financing for our project?
Answer: You are contemplating a start up business from a hobby that you have had for many years. This is done thousands of times each year in the United States and the chances for success are far above average. The fact that your wife is anxious to be part of the endeavor increases the odds for success. We will assume that you have accumulated some savings over your thirty-year employment in the aircraft industry and have a modest amount set aside in an employee savings plan which can be used as equity in your new business. Or, perhaps you have some equity in your home that could be used for the same purpose.You have asked ,"What are the things we need to do in order to get bank financing for our project?" Bankers and other financial institutions often use the "Six Cs of Credit" when determining credit worthiness. The six Cs are as follows: 1. Character2. Capacity3. Collateral4. Credit5. Capital6. ConditionsCharacter is that quality in a person that creates a reputation for moral strength. This lender asks himself, "Would this borrower pay back the money if I lose the promissory note?"Capacity indicates whether or not the borrower (business) will have sufficient cash flow from profits to repay the debt. The best indication of capacity is by projections authored by the borrower or the borrower's accountant. Collateral could be the equity in your employee savings plan, your home, and other assets such as stocks, bonds, automobiles, real estate, life insurance, annuities and other investments. Any lender will require a current financial statement less than a year old to ascertain what can be used as collateral. In many instances, the items being acquired with the loan proceeds can be used as collateral. Most lenders require no collateral if the borrower is a long-time customer and the amount borrowed is less than 10% of his or her net worth. One's net worth is the difference between assets and liabilities. Some of the best financial statements I have seen were done on a piece of tablet paper on which the borrower listed what he or she owned and owed with the difference being net worth. Of course, some borrowers use an accountant for this purpose.Credit is the borrower's standing with a recognized credit bureau and with prior lenders. This information will be obtained by the lender.Capital is the margin or the contribution injected by the borrower into the business. Capital is comparable to the down payment in real estate and consumer loans. Conditions are reviewed by the lender when deciding whether or not to make the loan. For instance, no lender would want to make a loan on a service station if there is already one on every corner.The best advice I can give to a prospective borrower is to be prepared to address the "Six Cs of Credit" with the lender. The best preparation is to prepare the above described financial statement, gather the last three years' federal income tax returns, and then make an appointment with the lender. Last but not least, remember that the lender will make money by granting the loan and should be anxious to aid and assist you in your new business. Perhaps Confidence in yourself and your new business should be added as the "Seventh C of Credit".
