4. Making a statement.—A properly prepared statement creates a good impression. A false state ment, overestimating the worth of the borrower, is fatal if discovered. There have been cases where two sets of books were kept, one for show purposes, the other for practical use in the business. Such a thing cannot go on forever. A statement revealing the exact condition of the business in simple and direct terms, showing that provision has been made for ac cruing expenses, depreciation and such items, is of the greatest importance in securing a loan.
An amusing incident is told of a storekeeper who applied for a loan, but who did not understand how to prepare a statement of his affairs nor why the bank officer asked so many questions. The officer wished to assure himself that the man had assets of real value and, therefore, called at the store. Among other questions, the officer asked, "How much of this stock do you own, Mr. Stiggles?" "Oh," said the store keeper, "is that what you have been trying to find out? Well, now," as he paced along in front of the shelves, "I owe Libby, McNeil & Libby $50 for that canned stuff; I owe the National Biscuit Company $40 for that stuff; I owe Bill Jones $160 for the last supply of sugar, flour and coffee, and the rest is all mine." If an officer is shrewd enough to pick up the odds and ends, such as other assets and liabilities, the amount of money due, including taxes, etc., he will know more about the man's net worth than the bor rower himself.
In dealing with one's bank the value of a good ac counting system cannot be overestimated. One of the first requisites .for a good business man is that he have a thoro knowledge of his own business.
5. Knowledge of one's business.--A business man should approach the question of borrowing from his bank in the same way that he approaches any other business problem. When he buys $100,000 worth of raw materials, he knows that he will be able to store them until needed, that his men and machinery will be able to work them up properly and that his sales men will be able to dispose of the finished product at a profitable figure. He investigates the entire mat ter before placing his order.
When he goes to his banker for a loan, he should be just as well informed about his financial standing. He should be able to state his case clearly and simply. Except in rare emergencies, he should never rush to the bank in a hurry for a loan. There are many things for a banker to consider before deciding whether or not to make the and he should be given ample time. Of course, occasions arise when
a business than is "caught," when he simply must have the money at once. At such a time he may be al most certain of receiving the loan without delay, if he has had the foresight to build up a credit standing at the bank. Otherwise, he cannot reasonably expect it.
0. Credit department—The credit department in any bank is an evolution. It grows as the bank grows. In a small country bank, the president does not keep any record of the worth of his borrowers.
It is not necessary, since he and the other members of the board of directors are intimately acquainted with every one who does business with the bank. If statements of condition are taken, they are seldom detailed. As the bank grows, however, comparative records of a man's financial responsibility become absolutely necessary. Then statements of condition are required and analyzed and these are made the basis of further investigation.
When a concern seeks to open borrowing relations with a large city bank, its officers are asked to prepare a statement, usually in the form shown in Figure 1, pages 72, 73, if the applicant represents a corporation, or as in Figure 2, pages 74, 75, if he represents a firm. These forms were prepared by a committee of the American Bankers' Association after mature delib eration. The forms are often modified to meet local conditions. The statement is usually handed to an officer, who gives it a cursory examination and then turns it over to the credit department for analysis, additional investigation and report.
7. Credit analysis rules.—Invariably a borrower seeks to show a solvent liquid condition when making a statement to a bank. To do so, he should make the statement at a time when liabilities are lowest. When examining a statement the character of the business must be kept in mind. Furs and raw silks, for example, are sold on a six to ten months' note and woolen goods on a sixty to ninety days' open account. Now, if a credit man should find a large amount of bills receivable in a statement of a raw silk or fur con cern, he would not raise a question; but if he should find the same condition in the statement of a woolen manufacturer, or in the statement of a department store, which should sell for cash or on monthly ac counts, he would understand that the notes repre sented slow and possibly bad accounts.