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Blue Ribbon Consulting

"Good Horsemanship is Built on Solid Basics...So is Good Business!"

From The Bank's Perspective
By Lisa Derby Oden

At some point your small business will require additional capital in order
to continue growing. It may be that you want to finance an indoor arena, buy
a new tractor, or purchase some top breeding stock. Perhaps you are a
start-up looking for funds to get your venture off the ground. Or you hear
of an existing business for sale that you recognize as a great opportunity.
You go down to your local bank, and they indicate you will need a business
plan. What are they really looking for and how do they make their financing
The minimum requirements in the application process include the bank
loan application form and a business plan that contains: a cover letter or
executive summary; background information regarding the business and the
owner; proposal specifics - how much money do you want; sales and expense
projections and assumptions; historical financial information for the last
two to three years; and a personal financial statement for the last two
If you are looking for $100,000 or less, the bank will probably use
CREDIT SCORING to determine whether you are granted the loan or not. This
system is based on your business and business principal's past credit
history. Their rule of thumb is to examine the 5 C's. These are: Character,
Commitment, Cash flow, Collateral and Conditions.

Character refers to your credit report. Do you have a clean credit
report? If you are unsure, contact any of the credit bureau services to find
out where you stand. A small fee may be involved, but is well worth the cost
if you uncover mistakes that are affecting your ability to secure a loan.
The major credit reporting bureaus are:
Equifax (800)685-1111
TransUnion Corp. (800)916-8800
Experian (888)397-3742

Commitment takes a look at how much the principal has invested in the
business and if they are willing to give a personal guarantee to the loan.

Cash flow is the life blood of any small business. Bankers will
consider whether the business earns enough to pay the loan. Generally
speaking, for every $1.00 of debt, they want to see $1.20 coming into the
business. Historical cash flow figures will be viewed along with your
projected figures.

What are you pledging for collateral? Banks assign these valuations for
what you have: ~ Accounts receivable - 70-80% of
full value on accounts under 90 days.
~ Inventory - 30-50% of your cost. ~ Equipment -
80% for new equipment; 60% of net book value for used.
~ Real estate - 75-85% of fair market value.

Conditions examines general economic conditions at the time, as well as
conditions within your industry. Customer concentration is also considered

Remember, the bank and commercial lenders are only one source of
financing, and are probably the most widely used by established small
businesses. They are able to offer the lowest interest rate. Keep in mind
that a horse business may be considered a specialty market to some banks.
They may indicate they don't serve this market for certain loans. The trade
publications often have ads from lending sources that do address the equine
Establishing a solid, positive relationship with your banker is an
important part of your business success. If you don't need money now, don't
wait to build the relationship. Consider inviting your banker for a tour of
your facility. While it isn't a guarantee, bankers may be more likely to
lend money to businesses they know and with whom they already do some
business with.

(Lisa Derby Oden has been providing business development, marketing, and
association consulting services to the horse industry since 1995. Oden is
author of "Growing Your Horse Business" and "Bang For Your Buck: Making
$ense of Marketing For Your Horse Business." She is the 1999 AHC Van Ness
Award recipient for outstanding service to the horse industry. She can be
reached at: (603)878-1694; email at; or visit her
website at

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