120 – The Five C’s You Need to Know About Small Business Loans with Katie Wiswald of Highland Park Bank and Trust

Hi, you're listening to gift biz unwrapped episode 120.

It's really To have your banker understand your business and understand

what that loan is for.

Hi, this is John Lee,

Dumas of entrepreneur on fire,

and you're listening to gifted biz unwrapped,

and now it's time to light it.

Welcome to gift bears on wrapped your source for industry specific

insights and advice to develop and grow your business.

And now here's your host Sue Mona height.

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while I'm here to tell you that it doesn't need to

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If you know what to do,

help you with this,

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price of buying me a cup of coffee.

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job. And now let's move on to the show.

Hi, there it's Sue and welcome to the gift biz on

wrapped podcast,

whether you own a brick and mortar shop sell online or

are just getting started,

you'll discover new insight to gain traction and to grow your

business. And today I have the pleasure of introducing you to

Katie whiz.

Well, Katie is a commercial and consumer lender at Highland park

bank and trust.

For the last 15 years,

she's been serving the needs of local businesses and its residents

as a lender.

She focuses on learning all she can about her customer's businesses

and understanding their needs.

This helps her to identify the best financing options available to

meet their specific goals from equipment purchases,

working capital lines to real estate loans,

Katie enjoys helping her customers achieve their financial goals so that

they can focus on their business and the clients that they

serve. Welcome to the show.

Katie, Thank you for having me,

you know,

I start off in a way that is so different than

finance, right?

Very different.

Yeah. We're going to talk about what you're all about in

a creative way.

And that is by you describe a motivational candle that would

represent you.

So if you were to choose a specific color and some

type of a saying,

or a quote on your candle,

what would that be?

So I would say the color would be blue,

a lighter Aqua ish blue,

and the same would probably be don't watch the clock,

do what it does.

Just keep going,

because at the end of the day,

life is 10%.

What happens to us and 90%,

how we react to it.

And I think for anybody with a business,

they know that they be thrown at you from time to

time. And the best thing to do is to just move

through it and push through versus getting caught up with any

one specific problem.

Yeah. And you know,

I think as business owners,

too, we need to keep that mentality that we are in

control because in the end,

your business,

either succeeds or fails because of the decision you as the

owner make along the way.

Exactly. Although I Got to tell you,

I was thinking maybe your color would be green because of

money. No,

I like blue because it's calming and it keeps you cool

as you stay the course.

There you go.

Perfect. So Katie,

let's start off with talking about how you got attracted to

the financial industry in the first place.

So I've always been interested in numbers.

My first job after college was actually in insurance and I

gravitated towards a new cities where I was working with numbers

and calculating things out.

And then I made the switch to banking and I've been

through all areas of the bank.

I've started as a teller slash personal banker,

moved up to a credit analyst and have now been a

lender for about the last 10 years.

And I really just,

I like helping people with their businesses,

you know,

as a bank,

you're a partner with the business and you're working together to

help make that business successful.

And I've really enjoyed that in my career.

Okay. So in the intro,

you talk about the fact that you really want to understand

what your clients are all about.

For example,

we know each other,

but let's say I was walking in and I was unknown

to you.

How would you start working with me?

The first thing that I do is I ask my clients

to explain their business to me,

not just what it is they do,

but how it works.

How do you make money?

How do your payments come in?

How do your payments go out to your suppliers?

And that cashflow cycle is really important to figuring out what

is best for the business,

from a financial and from a lending standpoint,

a lot of people always talk about the five C's of

credit that the bankers look at.

And for anybody who's not familiar,

those items are cashflow,

collateral, credit,

and character capital and conditions.

So by talking to my,

I get a feel for all of these five things and

then can help direct them into the best product for them.

Okay. So you really sit so you don't have an expectation,

right? When someone walks in that you're going to send them

down a similar path,

or you're just,

you know,

you're going to present to them,

the loans that are available,

you really try to understand their unique situations.

And then you go from there.

Definitely because there are a variety of financing options and ways

to finance your business.

And depending on where the business is in its cycle will

help determine the best way to provide that financing.

For example,

if you're starting off and you're a brand new business,

it's going to be difficult to do a traditional bank loan

because a bank will typically underwrite to historical financials and a

bank likes to look back a year or two and see

historical trends for the business.

There's other alternatives out there though that can mitigate against that,

that have been used.

We have SBA loans.

You can go to a factoring company where they will actually

finance your receivables.

You can go to a micro lender,

there's a variety of them out there that will start with

smaller loans for newer businesses.

One way that often is used when a business is just

starting off is investors or incubators,

friends, and family money.

People who will invest for either a return on their investment

or for equity in the business.

A lot of times that's used from new business just because

there's no financials for the bank to underwrite.

Okay. So let me stop you there.

Cause we've just covered a number of different things and I've

got I'm furiously making notes over here because I have a

lot of questions so that our listeners can really stay on

the flow of this.

Let's really back this up to the very beginning.

Let's say somebody is considering a business and they don't really

have any type of an investment yet.

At what point could someone realistically be coming in and talking

about a small business loan versus just bootstrapping that we hear

a lot,

you know,

a lot of people will just use whatever money they have

available and kind of build it as they can with money

that's available.

But what are your words of recommendation in terms of,

if someone is starting out,

do they come to you?

Do they try to bootstrap first?

Where is the tipping point of walking in the door?

I always tell everybody that I meet who has a business

or is thinking of starting a business.

It's never too soon to come in and talk to a

banker. The reason is even if the bank can't finance you

initially, it's helpful to know what you're going to need to

have at one point in time that the bank's gonna want

to underwrite a bank loan.

So you might just be starting off.

But what I've seen oftentimes is people do bootstrap and they

get their business going,

but then they run out of money and they don't have

enough to make it to that next level.

And as long as they have some of those five items

that I discussed before the C's of credit,

Go through those in detail in a minute.

But yeah,

carry on with this first.

Okay. So that can help you,

but there's a number of things that the bank is going

to want to see when they underwrite your loan.

What I think is helpful is even if you're,

you're not bank financial yet it's helpful to come in and

see what your options are.

For example,

have customers who have come in looking for a loan,

they were just starting their business.

So I wasn't able to help them from that standpoint,

however, with a business loan,

I should say,

however, we did alternate financing.

So for example,

you can get a home equity loan,

use the equity in your house to help finance those costs.

And you can either use that as your capital or your

working capital for the business while you're getting things up and

running. It's always helpful.

I think for a business to understand that you might have

the capital to get everything up and running,

you're going to purchase the inventory.

You're going to put the tenant improvements into your space.

You're going to be ready to open the door on day

one. Unfortunately though takes a while to make sales and then

collect on those receivables that you may have for your business.

So that's the cash flow that a business owner really needs

to understand because there's always a timeframe between when you have

to pay your supply heirs and when you're going to collect

from your clients.

So making sure that you have enough working capital to cover

those needs is really important.

Would there Ever be a time when someone would come in

and I understand what you're saying,

it's never too early because you also are then able to

start developing a relationship with a banker.

They know where you're going.

Even if you're going to bootstrap for a little while and

come back,

I don't know,

six months,

a year later,

there's been some type of a base established with somebody.

Plus you're probably able to give them a lot of good

recommendations and advice as they start proceeding.

Exactly. In fact,

a lot of times I feel like I'm more of a

business counselor than a business banker because I've seen a lot

of different things,

the variety of different types of businesses and can help direct

people to places that might be of benefit.

Whether it's somebody that can help with marketing or somebody that

can help with logos or whatever it is,

whether I finance them or just come across them in the

years that I've been in banking,

I can help connect people,

which is always very helpful.

In addition,

when you start your business,

obviously you want to establish a bank account and,

you know,

depending on your bank,

they may have some products that allow for some flexibility based

on personal credit score that might give you some,

for example,

some overdraft protection while you're getting your business up and running.

Are there any examples you can give us of someone who's

come in early just to give us some ideas of people

who you weren't able to help right away,

but possibly could help in the future.

What types of situations are those?

I've had a few of them.

Some of them are tech companies,

people that wanted to create an online application or an online

business. One of the things that the bank looks at is

cashflow. So for a startup,

the cashflow is never really there.

So that's always difficult for us.

But one of the other things that we look heavily at

is the collateral.

And it's hard for a bank to finance a company that

doesn't have collateral such as heavy equipment or real estate,

things like that.

So Something that's really tangible versus intellectual property,

Something tangible exactly.

Typically when the collateral is any sort of service business tends

to be light on collateral.

So in cases like that,

the bank focuses even more on the cashflow from the business.

So if it's a newer business and they're just getting up

and running,

or they're just kind of breaking even,

and not ready for that bank financing,

you know,

that's where I would maybe send them over to,

for example,

an incubator here in the Chicago land area,

which is a tech incubator downtown.

So it's a perfect place for them to go where you

have investors who are interested in tech companies that are looking

for new ideas to invest in.

So sending them to various places like that.

Another thing that can be done are SBA loans,

where we can get a guarantee or a partial guarantee from

the small business administration,

for our loans in cases where the bank might have the

cashflow, but not necessarily the collateral we need,

or we don't have a full two years of financials,

yet historical financials for that business.

We can go through the S SBA to help get one

of those guarantees,

which mitigates the bank's risk on alone and makes it easier

for us to provide financing to a newer business or a

business that doesn't have a lot of collateral to lean back

on. Perfect sense.

And also what's becoming very clear is how important it is

to go and really explain your unique situation because it's becoming

more and more obvious to me that there are so many

different avenues you can take.

And that's why you're the professional.

You connect them up with the appropriate things based on,

you know,

what's going on with them at the time.

So the good news is Katie that most of our audience

do have something tangible because gifters bakers,

crafters, they're most likely selling some type of a product,

whether it's physical product or to consumable like cupcakes or chocolate.

So we're in a little bit of a different situation,

but you keep talking about all these words with the CS.

So I think this is a good place for us to

go ahead and define those five CS.

So let's go through each of them and then you know

what the implications are and what's underneath all those CS.

So the First one is cashflow and cash is always King

cashflow for banking is King.

And the reason is,

is because the bank at the end of the day just

wants to get repaid.

So our goal is to lend dollars to help businesses grow

and then get repaid.

And typically the bank wants to see cashflow of 1.2

times. And to explain that and simple numbers is we will

look at the cashflow from the business,

which is the net income plus interest expense plus depreciation and

other non-cash items divided by the debt service.

So the annual loan payments for the proposed debt.

We want to see that that's covering at 1.2

times times.

So if you have 120,000

in cashflow and your debt service is a hundred thousand a

year, that's the number,

that's the ratio that the bank measures it by.

Sometimes people might be a little tighter.

However, that's where talking to the banker and the banker understanding

your business is key because what the new loan could be

doing is helping you increase sales or reduce expenses.

So there could be effects that that loan will have that

will improve the cashflow over time.

So that's why it's really important to have your banker understand

your business and understand what that loan is for.

So I see on shark tank,

a lot of times when people are asking for money,

they'll say,

well, where are you going to use this money for?

And if they say,

well, I haven't taken a salary yet.

You know,

they're like,

eh, wrong answer.

Kind of like what you're saying is,

you know,

it's gotta be doing something to grow the business so that

the bank will get its money back.

Exactly. And two of the main structures for alone are either

a line of credit or a term loan.

And I always think that it's really important to pick the

structure that's appropriate for your loan purpose.

If you're both buying equipment that you're going to have for

five years,

that you need to create your product,

then that would be a term loan.

You want to borrow it all up front and pay it

back over time.

If you're looking for working capital where your receivables aren't coming

in, as quickly as your payables need to go out and

you need just some cashflow to help shore up some shortfalls

from time,

time, then a line of credit is more appropriate because what

the bank will want to see on a line of credit

is the bank wants to see that line go up and

down. What I often see with smaller businesses is they'll get

a line of credit over a term loan because they like

the fact that the monthly payments are interest only,

and then they borrow it,

but then they never pay it back.

And the issue with that,

although it's helpful for the cashflow,

cause they're not paying the principal back.

The issue is the next time they do need to purchase

an, a piece of equipment or some other long-term asset.

Then they don't necessarily have the borrowing capacity because,

and they're not using the line of credit in the appropriate

manner. Yeah,

it makes total sense to me.

Got it.

All right.

Let's move on to the second C.

So the second C is collateral And this can really be

a variety of things for a small business.

This could be,

you know,

marketable securities that you have from a previous life or that

you've accumulated over time that you don't want to cash in

because there would be tax liabilities.

And so you might want to use that as your collateral.

This is often used on a newer business that doesn't have

historical cashflow.

It's a liquid asset that the bank looks favorably on because

it is a liquid dateable asset.

Something that could be sold and liquidated to repay the debt

in a short timeframe versus something like real estate,

where you could use that.

My example before of you could use a home equity loan

to do the financing.

If you have equity in your house,

or if your business is in a commercial property,

sometimes you might want to purchase that property that you're occupying

and start paying rent to yourself.

So real estate is often use a lot of times,

it's just a blanket lien on business assets.

So in a case like that,

the bank will take a blanket lien on the business's assets.

The bank will file a UCC uniform commercial code filing on

the business at the state level.

And what that allows the business to know is that they

have the ability to capture the cash flow that's coming in

if needed.

So that's often used if there's a cashflow dependent loan,

it also covers all equipment that the business owns excluding any

specific leased equipment that the business may have.

Cause another way to do financing for your business is instead

of going to the bank to purchase a piece of equipment,

you can go to a leasing company and lease the equipment.

There's oftentimes a lease to own where there's a buyout of

a dollar at the end of the five-year lease.

It's another way of financing that equipment instead of going through

the bank.

Okay. All right,

perfect. So we get a feel for collateral.

Let's move on to number three.

So three is credit and character.

That's really what is this person Bringing to the table with

their business?

And with any loan,

a bank whomever's financing,

you is probably going to pull a credit report on the

individual owner or owners of the business.

And if you show a history of not paying your bills

on time or having late payments or having charge offs on

your credit report,

it doesn't tell a good story Because it kind of lays

the groundwork of how you're going to be handled and things

moving forward.

Exactly, Exactly.

So what you can do,

for example,

at my bank,

we have products that we can give people based on just

credit score.

So we'll do minimal underwriting for the business on some smaller

loans, but as long as they have a good credit history

where they have a history of repaying their bills on a

regular basis with no late payments that can help you get

a loan through the bank or whomever.

Perfect. So if we have any listeners right now who are

listening to this show,

because you're thinking about starting a business at some point,

make sure you're paying your bills.

I mean,

there's a lot you can do right now to set yourself

up in a good position,

if ever you're going to end up going for a business

loan. So one of those is,

let's say you're just out of school.

You don't really have a lot of debt yet,

but car payments,

you know,

rent, you know,

mortgage payments,

whatever you're doing,

just make sure you're paying on time because that can really

help you,

not just here,

but this is the point we're talking about here,

but it'll help you in the future.

So that's something that you can do right now to take

action, even if you're not starting your company right away.

And I also recommend you can pull a free credit report

from each credit Bureau once a year,

if you go to free credit report.com

and I recommend it to everybody I talk to because you

can also look to make sure everything that's on your credit

report is in fact yours.

And that there's been no fraudulent activity on it,

which unfortunately we see often.

And you probably want to get on that sooner versus later.

I'm sure Exactly.

Cause it does take time to clean things like that up.

Do you go to someone like you to do that?

Can you help in that,

in that manner or no Companies that can help or are

places businesses like LifeLock.

If you've had fraud with your social security number or other

personal information,

they can help protect against future fraud,

but there's also businesses that can help you clean up.

Okay. Issues so better just to know that your reports nice

and clean and safe and then check it from year to

year. Exactly.

Perfect. All right.

Anything else on credit and character or should we move on?

We can move on.

The next one is capital.

And this one is when we look at a business,

we want to make sure that a business is well capitalized.

As you were saying,

in your example,

before, we don't want to give a loan so that the

owner can take a salary.

We want to make sure that there's enough basic equity in

the business that the owner has skin in the game.

It's a little easier to describe for example,

on a real estate deal.

Sometimes you see somebody purchase a building for,

let's say a hundred thousand and then it appreciates.

And two years later,

let's say it's worth 150,000

and now they want to cash out a hundred thousand because

there's 50,000

of equity.

The concern that the bank always has there is they're taking

all of their cash out and they have no skin in

the game.

So to say,

so we want to make sure somebody has,

you know,

that they're invested,

that they're invested in it,

that they support it.

One thing that you will see on a typical bank loan

is that if we make a loan to the business,

the business will be our borrower,

but any owner of the business,

specifically, any owner of 20% or greater,

we require them to guarantee the loan because we want to

make sure that they're behind it.

If somebody wants to borrow a million dollars and they don't

want to put their name behind it and support the repayment

of it,

that's going to get the bank a little nervous.

Okay. So you're talking about somebody then I believe,

I just want to clarify,

who's coming to you for a business loan,

and then you're saying that you want them to underwrite from

their personal finances.

Well, two things,

one, we're going to ask them for personal financials and I'll

go through the list of all of the financials that a

bank will typically request for a loan.

But one thing that we just want to make sure that

they're willing to guarantee it,

which means that if the business doesn't have the cash flow

to repay it,

then when we're going to look to the Garren tours to

personally support any cashflow shortfalls.

Okay? So that could be your personal,

that could be a friend who's going to underwrite for you.

Something like that.

It could be,

sometimes people will get a co-signer on loans,

but typically it's just any owner in the business.

The other reason for that is we want to make sure

that all of the owners,

let's say you have a business and there's five owners of

20% ownership.

We want to make sure that all of the owners are

behind the business and supportive of the business and we'll help

support if there's any cashflow,

shortfalls or hiccups that occur.

Got it.

Cause sometimes you'll have just silent investors and that's all fine

and well,

but possibly not when you're going for a loan,

correct Fact,

if you're selling an investor on 50% of the business,

they're probably going to need to guarantee.

But if it's a silent investor,

like I was saying before friends and family money where they've

put a little money in to help you get started,

they either don't have ownership in it or they have a

minority investment in it.

We're not going to ask for guarantees.

One thing that we may ask is if you do investor

money in your business and loans from investors or loans from

shareholders, so it could be your own personal business with personal

loans that you've made to that business.

Oftentimes the bank will ask for that loan to be subordinated

to the bank stat,

which translates to you agreeing that if there isn't enough cashflow,

the excess cashflow will be used to repay the banks debt

first, before you repay yourself or other shareholder loans.

Yeah, it makes sense.

All right,

let's move on to five.

Five is just conditions.

If you think about it a few years ago,

we were having a real estate downturn.

So some of it is we're going to do a loan

based on how the economy is doing,

how that specific line of business is doing.

If you're selling widgets and widgets are going out of style

and you don't need them anymore.

For various things,

look at cars.

For example,

cars are going electric.

If you're a company and your creating parts for electric cars,

we could see that there'd probably be some growth in that

area. But if you're making parts for diesel cars that are

being phased out,

that might not be the best condition to try to grow

a company.

Right? So if I have a part that's a cleaner for

a VCR,

it's probably not of interest.

It's probably not of interest because you're probably not going to

grow that business very much.

So it sounds like relevance of your product and then also

market conditions.

Exactly. And competition.

What if your one of seven cupcake shops on the same

street, that's going to be a tough condition to survive in,

unless you can prove why your cupcakes are going to be

so much better and fly off the rack compared to the

other six cupcake shops.

Okay. Makes sense.

Makes total sense.

Okay. So these five CS,

again, our cashflow collateral credit and character capital and conditions.

Really good information,

Katie, I appreciate you breaking all of this down for us.

Might go over some of our heads,

but we can always go back and relisten to this again.

So that's wonderful.

Let's say I'm coming in,

I've listened to this podcast.

I kind of understand.

I want to come in and talk with my local lender.

You're talking about the things that you're going to be requesting

the different types of pieces of information and just what to

expect when you're walking in the door,

let's go through all of that for everybody.

So once The banker is aware of your business and you

talked over what your business does,

what your business needs,

what the loan is for then in order to underwrite the

loan, the bank will typically ask for a personal financial statement

from each of the guarantors two to three years of personal

returns for each of the guarantors.

And again,

those guarantors are typically any owner of 20% or greater though.

They can also be key employees that are imperative to the

business, as well as two years of business tax returns and

current interim financials for the business,

including profit and loss statement or income statement,

a balance sheet,

a current accounts receivable,

aging, if applicable,

and a current accounts payable aging.

What the bank will do is the bank will look at

a loan from two different ways.

First, we look at the business cashflow to see how the

business is doing,

and if the business can support that debt.

But then what we often do with small businesses is we'll

look at it globally because we want to make sure that

globally between the business and the guarantors,

which are oftentimes one to two owners that are living off

of the salaries from that business,

we want to make sure that globally they can service all

of the debt.

So we take the cashflow from the business.

We take the personal income that the guarantors make.

And then we look at the debt,

the business and the personal debt to make sure that it's

covering there's enough income,

enough cash sources to service those cash needs.

Got it.

So as you're talking about all of this,

the first thing that comes to mind for me is if

you're already in business,

when we've talked about this in past podcast episodes and on

my blog and all of that is make sure you have

an accounting system like QuickBooks or other,

because all of these reports that Katie is talking about can

easily be pulled up from a system like that.

But if you are hand jotting down your sales,

you know,

just doing like the pen and paper thing,

this would be a nightmare to try and get.

And it probably wouldn't be as credible either,

right? Katie,

It won't be as credible with real estate loans.

We sometimes see that just because there's not daily transactions you're

taking in rent once a month and then paying expenses once

or twice a month,

but for an operating business where you have money going in

and out on a daily basis,

not only is it important for the bank to be aware

of those numbers and be able to see them at any

point in time,

it's important for the business owner to understand those numbers,

things like accounts,

receivable, aging,

a lot of people don't focus on,

but it actually can tell a lot about why you may

have cashflow needs.

Sometimes I've seen a business come in and they need a

working capital line because they're having a cash crunch.

Then when I look at their accounts receivable,

aging, I see that they have clients that they've let not

pay them for over 90 days in the bank when we're

looking at collateral.

And if we're doing a working capital line that could be

collateralized specifically by accounts receivable,

the bank will finance typically 80% of eligible accounts receivable.

Those eligible accounts receivable are receivables that are aged 90 days

or less.

So if you're not spending the time to collect from your

clients in a timely manner guarantee,

and your suppliers are still wanting you to pay them in

a timely manner.

So if you're making your payables timely,

but your receivables aren't coming in timely,

that's where you end up with the cash crunch.

In addition,

if you let your receivables go too long,

the odds and the chances of collecting on them get harder

and harder.

Sure. In the end a bank is looking at you,

just like you would look at I'm loaning money to somebody

else. I mean,

they're wanting to make sure that they're going to get paid

back and they're looking at everything in your history,

all of this detail that Katie's sharing,

you know,

they're taking a chance on you in the end and is

it a good chance to be taking?

So you've got to prove your case.

Definitely. The other thing,

I will just point out one for any sort of tax

effect that any sort of expense you should always talk to

your accountant,

bankers are not accountants.

So we will always advise you to talk to your accountant

on how to report things as far as expenses and on

your tax returns.

We're always going to tell you to go to your attorney

to determine how your business should be structured and who should

be the authorized signers.

Those are made by those professionals.

One thing that we do come across though,

is people hire really great accountants who can help them reduce

their tax liabilities by having them write off a number of

expenses. Unfortunately,

sometimes that does not help when you're trying to get a

loan. So people will come in and we typically will underwrite

to tax returns.

And I often see where your QuickBooks say one thing and

then your tax return and say something else because your accountant

has gotten creative with what they can write off all valid

items that can be written off.

However, it affects the cashflow that the bank underwrites too.

So that's just always something to keep in mind and that

it's great to not pay the income taxes sometimes.

However, it can affect your ability to borrow Really good point

would not have thought of that.

So I appreciate your bringing that up.

What type of a timeframe do you have from when someone

let's say someone you've know them already,

you know,

their business,

you've spent some time with them now they're coming in with

all their information and you're going to advise them what's the

right direction to go.

How long does it take?

And I'm sure there's a range,

but what can you expect in terms of,

from that point to actually getting the loan approved?

It does vary.

It varies on the collateral.

It varies on the complexity of the business,

but in general,

it also depends on the workload and the time of year.

And if people are on vacation,

but I would say about two weeks is your typical turnaround

time. It can be faster for smaller loans that don't have

as detailed underwriting,

but it can be longer for more complex deals that for

example, might have real estate as collateral where you then have

to get an appraisal on the property to make sure that

it appraises out before you can close on that long.

Got it.

So, but two weeks,

maybe two,

what a month to two months,

I would say two to six weeks.

If you are going with an SBA loan,

the SBA is the government and the government does love their

paper. And so there's always extra paperwork and it always takes

a little extra time.

So sometimes those loans can take a little longer to get

processed and closed,

but if it's not an SBA loan and it's a traditional

bank loan,

I would say between two to six weeks.

Perfect. And some closing words on this for all of us

who get really scared about all of this,

cause it sounds like a lot of terms.

We don't know a lot of information.

We don't know,

possibly a step that we're uncomfortable with.

What is the value of getting a small business loan?

How can you put us at ease that this might be

something people would want to consider?

One thing that I would say is it's always great to

establish a credit history separate from your personal credit history.

A lot of times people will self fund.

They will use the home equity option for example,

and then make shareholder loans to the business.

But then it doesn't provide a history of what the business

can do so that when you are ready to move on

to that loan later on for growth,

you don't have any history with the bank.

If you have a history with the bank of always keeping

your account positive,

never having returned checks because you're keeping an eye on your

books and you know exactly how much you have in your

account that you can write checks from.

If you have an overdraft line or even a small line

of credit,

it could be five to $10,000.

If the bank has a history with you,

that shows that you have been responsible and always,

you know,

talk to the bank,

always are on top of everything so that the bank has

that history that will help in the bank wanting to grow

with, Grow with you.

And I'm also thinking if you ever are building a company

to sell later,

that probably strengthened the sale opportunity to having solid credit and

something separate from your personal yes.

And talking about what your ultimate goal for your business is,

is one of those steps.

Are you in business?

You just love what you do,

which my guess is most of your listeners do that.

They love what they do.

And they just want to,

you know,

being able to do a job that you love is great.

Sometimes people are growing a business because they want to pass

it on to their next generation or because they want to

sell it and then retire to the Caribbean.

Whatever the reason is to know what those ultimate goals are,

is helpful because it'll help you figure out the best way

to finance and structure things.

A question Occurred to me,

Katie, I'd like your comment on,

I think,

and I've heard in the past of a lot of people

who they don't need a ton of money,

but they find it really easy just to go ahead and

finance any purchases that they want to make or costs that

they've incurred just through their credit cards.

What would you say to that?

So I've seen a number of businesses use that model.

And if you use your credit card for the purchases and

you're paying it off every month,

so you don't have any interest expense tied to it.

It's not a horrible idea because people do use it to

get miles and things that they can use later on for

their business,

for travel,

things like that.

However, what I've often seen is businesses who get in the

habit of putting things on their credit card,

because they don't have a working capital line for the business.

They use their credit card for that,

but if they don't pay it off every month,

the interest rates that they're paying are really affecting their business

cashflow because they have to start paying so much in interest.

You know,

a credit card could be in 17,

20% interest versus if they start with a bank loan or

try to use a bank working capital line,

instead interest rates are below 10%.

You have a lot more capacity to make those payments because

your interest rate isn't as high.

And then sometimes if you get in the cycle,

you start increasing those balances.

And then when it comes time to go to the bank,

to look for financing,

the bank has to take all of those credit card payments

into account,

and it could be affecting your credit score because if you

have very high balances on your credit cards and even on

a business card it'll show,

even if you're an authorized signer,

it'll often show on your personal credit report,

it can affect your credit score,

which can affect your ability to borrow.

So it sounds like a major caution,

you know,

it's so much easier just to pull out that credit card.

And maybe if you have just one month,

you have some extra expenses that,

you know,

you're gonna be able to pay off pretty quickly.

You may use that as a fallback option,

but in terms of actually using that as the base of

any extended costs that you have,

that would not be a good idea,

Correct? It's helpful to use it from an ease standpoint where

you're making purchases online.

So it's just easier to put in a credit card number

if you're using it for that purpose and then planning on

repaying, it that's fine,

but if you use it and then when you get that

receivable in from your client,

if you use that receivable to pay other expenses and to

not pay down your credit card,

then you can end up with those high balances that will

affect. And I would say credit cards are good for miles

or whatever other reward program you're on.

So that's not bad.

They do have benefits and they actually will Died some protection

from a fraud standpoint.

So if you,

if somebody gets a hold of your credit card,

you could argue it with a credit card company.

And they're usually pretty good about helping you out with that.

One more thing that I will say,

and this is not from a lending perspective,

but just from a banking perspective,

that a lot of businesses don't know,

especially in today's times when a lot of payments are auto

debited or auto credited to an account,

a business account only has 24,

technically only has 24 hours to dispute a fraudulent debit from

their account.

So one parting word that I would leave your listeners with

is to always look at your accounts,

get online banking and look at your accounts every day to

make sure that the items that are coming through your account

are valid items,

because there's a lot of fraud that's out there.

It's rampant among businesses.

And if you don't catch it in time as a business,

you may not be able to recoup those losses.

I did not know that that is a huge heads-up for

all of us.

Yes. I was not aware of that.

So Online banking and get in the habit of sending on

every day,

just to keep an eye on your accounts.

Lots of things you've given us to think about.

Hopefully I haven't overwhelmed.

Well, like I said,

we can always go back and listen again.

Right? Correct.

All right.

Perfect. Any other closing comments,

anything that you think we haven't touched on that we should?

I think that's it.

I think we really covered everything.

I would just say,

don't be scared to go into the bank,

talk to a banker,

talk through things.

Even if you're having problems in a specific area,

you can always talk to your banker about how they would

possibly address it.

Or if they have other resources that you can go to

in our area,

we have something called score that I refer people to all

the time,

because sometimes to get to that next step,

isn't necessarily a financing thing.

Sometimes it could be something like marketing or management,

and there's a number of other resources out there that can

help you address those issues that will help you get ready

to be financial.

That's perfect.

I never would have thought of it that way either.

And what you're saying is true.

I mean,

it doesn't cost anything to go in and sit down and

talk with somebody,

just share the position where you're at and see what your

options are at that point.

Definitely. I would say half my time is spent on just

talking to my clients and coming up with ideas of how

they can progress in their business.

Right. All right.

Now, Katie,

I'm going to circle into something a little bit different again,

we're going back to the candle mentality here.

Are you ready?

Yes. I'm going to invite you to dare to dream game.

I'd like to present you with a virtual gift.

It's a magical box containing unlimited possibilities for your future.

This is your dream or your goal of almost unreachable Heights

that you would wish to obtain.

Please accept this gift and open it in our presence.

What is inside your box?

This is a tough one for me.

And I can think of a variety of things,

but I'm actually going to say,

because I think your listeners will appreciate this.

I wish I had artistic ability as a banker.

I am very right brained and I love arts and Craftsy

things and making things,

but I need to follow.

I can paint,

but it needs to be a paint by number I can

bake, but I have to have a recipe.

I would love to have an artistic bone in my body

that I could pass on and enjoy The good thing about

being an artist is whatever you create is beautiful because everything

is unique,

right? So you can think of it that way too.

Definitely. It's easier for you to go from numbers to artists

street, then creatives to go from that to numbers.

Because when you were talking about how you got into the

finance thing and how you like numbers and all of that.

Oh, scary.

That's why we have you to count on Katie.

I will rely on you and your listeners for my artistic

decor because it won't come from me.

All right.

So if any of our listeners are right in the area

and listening and would like to come in and talk with

you specifically,

how could they get in touch with you?

So I can be reached at my email address,

which is K wizard world.

K w I S as in Sam,

w a L D as in dog,

at Highland park bank.com.

We are a Wintrust community bank.

I'm also out on LinkedIn,

under Catherine Winslow,

And we're going to have a show notes page as we

always do.

So you can always click over there and get more information.

You'll see a little bit more of a complete bio on

Katie and then all of her contact information as well.

Definitely. Thank you so so much.

I think you've taken what,

for many of us,

just by nature of what we do,

we've taken a very confusing and scary topic of all the

financing and broken it down for us.

So we understand it much better.

And I think the biggest takeaway for all of us is

there is nothing wrong with going in and just having a

conversation with your local lender,

you might really recognize some new opportunities that you never knew

existed. So thank you for enlightening us with all of that.

And I really like when you talk about back to your

candle quote,

taking action,

you know,

not just watching,

but going ahead and doing,

and there's lots of things that we can do on this

financial end that I think we just don't think about because

we don't want to be thinking about them.

So you've helped us with that so much as well.

So thank you very,

very much for joining me on the show,

sharing your wisdom with our listeners and may your candle always

burn bright?

Where are you in your business building journey,

whether you're just starting out or already running a business,

and you want to know your setup for success.

Find out by taking the gift biz quiz,

access the quiz from your computer at dot L Y slash

gift biz quiz or from your phone by texting gift biz

quiz to four four two,

two, two.

Thanks for listening and be sure to join us for the

next episode.

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