A couple of articles ago, I answered the question "why the bank asks for three years financial statements" The answer is they look at business trends that occur based on three year increments. One year is a place in time, two years is a coincidence, but three years is a trend.
If your banker has just asked for your most recent year end financial statement and updated personal financial statement. They may be starting their annual review process for your line of credit or loan.
You might cringe, because last year wasn't too good. However, you give your banker the financials and he/she will be comparing this year with the last two years and looking for trends. Changes in leverage or liquidity due to profits or losses, changes in profitability either gross profit or net profit and changes in activity meaning a slower or faster payment period in receivables or payables. It is likely the bank will ask you, the business owner for an updated personal financial statement to look for similar changes in liquidity or leverage and your cash flow.
Because you live in your business daily, you have probably already reacted to the changes in your business. However, if you haven't given your banker information regularly, he/she has not.
The annual review process gives you the opportunity to discuss with your banker, the changes that have occurred in your business, positive or negative. The flip side of that is it also gives your banker the opportunity to assess any change in the level of risk in loaning money to your company. All banks are required to assign a risk rating to your loan annually. If your company made a $1 million in profit, the risk changed. If you lost $1 million, the risk changed.
I would welcome any constructive comments from bankers and business owners out there on this topic.
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