By Robert Owens

As any Boy Scout will tell you, always being prepared is a necessity for just about anything in life. This sage advice is of utmost importance when your company is applying for credit. The more complete and thorough an application for credit, the greater the chance your business has in obtaining the needed lifeline of capital from your lender. But, what do banks actually look for in a "complete" application?

Tell the Whole Story
A business should be prepared to tell its whole story. A background narrative should include:

• Complete history of the company
• Synopsis of its product or service
• The markets it serves
• Methods of sale
• Management team members and their experience

Also, include a list of all the trusted advisors and references for the company, such as an attorney or certified public accountant. Be sure this narrative tells the good and the ugly. The better you can explain what your company does, the more likely a banker can understand why the requested funding is important to the future success of your business.

Next, the application should detail the request or need for credit. Begin with how much, for how long and for what purpose you need the credit. You will need to detail the all-important primary repayment source and any secondary repayment sources. Also, describe the collateral you will pledge to secure the loan and what personal guarantees are available to sponsor the credit request. These details will help establish your true credit needs and allow the banker to begin to think about possible credit structures and the reasonableness of the request.

The 5 C's
A good way to think of how your credit request will be analyzed is to consider the impact of the five "C's" of credit. These five "C's" represent the underlying analysis of any credit request.

Your request will be considered based on:

• Character (credit, personal and professional references)
• Capital (equity and net worth)
• Capacity (revenues, margins and earnings)
• Cash flow (historic and projected ability to service the debt)
• Collateral (type, value and liquidity of assets pledged as security)

Most, if not all, of this information should be in written form. A written narrative of background and salient points of the request will enhance understanding of your business. It will eliminate possible misunderstandings and will serve as a fact sheet during the analysis of your request. The narrative also will serve as a baseline for additional questions and inquiries.

It's All About the Finances
The last critical part of your application is the financial reporting. An established company should expect to provide at least three years of annual financial statements and tax returns. The latest interim period statement should be included along with interim statements of the same period from the year(s) prior. This information will help establish trends and seasonality of your business.

You should also include complete personal financial statements of any and all potential guarantors of the credit. If the credit request asks for the financing of assets, then asset listings, values and agings corresponding in date with the interim financial statements should be part of the application. Any financial projections you have completed should be attached with detailed underlying assumptions. All this will help the banker understand how the loan proceeds will enhance the financial picture going forward and provide justification for repayment under assumed conditions.

What this Means in the Current Market
The credit outlook for 2008 appears to be tightening. Therefore, business owners requesting credit should make sure their company and personal credit histories are in order. A simple request of business credit reports (Dun & Bradstreet) and/or personal credit bureau reports prior to requesting credit may enhance your chances of obtaining credit. Understanding the information contained in the reports and the method in which it is reported will provide you insight to how a banker will view your credit history. A company's trusted advisors can be helpful in reading, understanding and potentially cleansing these reports as well.

In a tightening environment, poor credit history can seriously impair, if not eliminate, your chances of getting a "yes" from your lender.

Being prepared, organized and honest is the best chance a company has in being successful in requesting credit. The more comprehensive view of your company's historical and prospective health you can provide, the better. Have a plan, but be flexible. Be open and honest. Organize your thoughts regarding your needs and provide a written baseline of salient information. If you do these things, you can and should expect better results when applying for credit.

Robert Owens is president of the Country Club Plaza location of Enterprise Bank & Trust, which offers comprehensive banking and wealth management services in metropolitan Kansas City and St. Louis. You can contact Robert at (816) 531-5353 or .