An important part of approaching a bank for a loan is to be in the right place at the bank.  One key distinction is whether you are a cash flow loan or an asset based loan.

Most companies will be asset based loans.  There is sufficient collateral to support the revolver, usually consisting of:

• Receivables.  Typically these can range from 70 to 85% of the receivables, less deductions for ineligible accounts (such as balances over 90 days or to certain types of customers)

• Inventory.  These could range from 25-50%of the value of the inventory, with less for inventory in process or raw materials and more for finished products.  Some inventory may be excluded as well, such as older items, certain types of inventory or inventory in transit.

A company with $20MM in receivables and $30MM inventory could support a $20-30MM revolver, depending upon the quality of the receivables and inventory.

Some companies, however, cannot rely on collateral alone to give them enough bank financing to cover their growth needs.  They can be good, solid, profitable, cash generating businesses but just do not have the underlying assets to go on.

An example can be a leasing company.  Their receivables just cover one month of lease payments, so their accounts receivable balance is relatively small.  Their real asset is the stream of future lease revenues, but that does not show up on the balance sheet.  They are a cash flow rather than a collateral based type of credit.  The lender needs to look past the receivables balance to the entire flow of future lease payments.  This is a cash flow credit, not an asset based one.

Banks will have different people covering cash flow credits.  It will be a waste of time to pursue people on the asset based end.  Hopefully, a good banker will steer you in a different direction in their shop.  Some banks will not really do cash flow credits at all.  You will need to go to banks that specialize in this area.

The other thing to consider is timing.  Cash flow lending can dry up in tight banking markets, which happened in late 2008.  Collateral lending can have its moments too, depending on the underlying collateral.

Know what type of lending you fall under.  Approach the right section of the bank and go to banks that deal with your type of credit.  Consider the timing as well.