A group of commercial lenders is seeking to standardize the way small businesses provide financial information for loan applications.
The purpose of the effort is twofold: to streamline the credit process for borrowers and lenders, and stem the recent erosion of financial information that small businesses have been providing to banks.
To that end, Robert Morris Associates, a trade group of commercial lenders, has developed a format for the preparation of financial statements and disclosures that banks generally need - but don't always get - to make a sound credit decision.
The idea is to spell out for the borrower at the outset of the application process exactly what kind of information the bank needs in order to make the loan.
Accelerating the Process
Up to now, the process often, has been a back-and-forth affair, which prolongs the credit process, according to bankers.
With banks now increasingly courting small-business borrowers, a streamlined credit process becomes all the more important.
"By providing this information up front, the loan decision-making process will be accelerated and creditworthy business owners will receive the funds they are seeking more quickly," said Joseph May, president of Robert Morris Associates, and adviser to the board of Citizens National Bank in Cheboygan, Mich.
Said Frank Bozick, senior vice president of Huntington National Bank in Columbus, Ohio: "It gives the bank enough information out of the chute to be responsive in a timely fashion."
The 32-page booklet, containing standardized forms, questionnaires, and checklists, dubbed the "business credit information package," was developed by Robert Morris Associates in collaboration with the American Institute of Certified Public Accountants.
RMA is providing the booklet at a nominal charge to its members and nonmembers alike, in an effort to gain widespread acceptance of the standardized format.
If the format does become an industry standard, it will be a boon to bankers who have complained about the lack of financial disclosures from their small-business customers.
Complying with generally accepted accounting principles has become increasingly complicated and expensive in recent years. As a result. small businesses increasingly are opting to file what are known as complied financial statements. without all of the accounting disclosures.
The format developed by RMA represents something of a middle ground between full disclosure and no disclosures at all.
For the banks, that means more information than they often get now, while for borrowers. it means a relatively inexpensive way of giving bankers what they need.
The credit information package is geared mainly for use by businesses with sales of $10 million or less. Larger companies tend to have more sophisticated financial reporting methods in place.
Standardizing the financial information required for small-business loans eventually could help promote widespread securitization of these loans.