What You Built. Episode 01: The Underwriter Never Meets You w/ Karen Appelgren

When a bank turns a business owner down, the reflex is to blame the bank. Karen Appelgren has spent her career on the other side of that desk, and she does not read it that way. The no, she says, is usually the business telling on itself.

Karen advises Idaho business owners at the Idaho Small Business Development Center, where she is Associate Region III Director and Senior Business Consultant.

Before that she was a business banker who grew and managed a commercial portfolio of Idaho companies with revenues up to twenty million in annual sales.

She has seen what a business looks like from the outside, from the seat that decides whether it gets funded.

Most owners get turned down for the same reason, and it is not the idea. It is preparation.

The story of the business is strong in the owner's head and thin on the page.

The projections carry numbers with no assumptions behind them.

The bookkeeping raises questions before it answers any. Karen's comparison is a job interview: you get one impression, and you do not get to explain yourself afterward.

Then there is the tax problem.

Owners work with a CPA to keep taxable profit as low as the law allows, which is rational until the year they need a loan. The number that minimizes the tax bill is not the number that proves the business can carry debt. The conflict has to be planned for in advance rather than discovered at the bank.

The part of the conversation that stopped us both was about fear. Owners avoid the books, Karen says, because looking too closely might reveal something they would rather not find. Opening your financials to a lender is a vulnerable act.

Her image for it: come in and inspect my house, pull open every drawer and every closet. Her answer is not motivational. It is a calendar. Protect the time, keep the cadence, and let what gets calendared get done.

The last thing she said connects the whole hour to the rest of this show. The underwriter who approves or declines your loan never meets you. The loan package is a reflection of the business owner and the business itself, whether or not the reflection is fair.

So the work is to build a business that reads clearly from the outside: systems, documented processes, decisions that do not all route through the owner. That is what makes a business fundable. It is also, exactly, what makes it sellable and worth more when it sells.

The Loan Package Checklist

Karen's checklist is the 18 items to gather before you ever walk into a bank. It is the practical version of everything above, built out of a career spent on the lending side.

Courtesy of: SBDC Idaho and Karen Appelgren. Reach out to her at karenappelgren@boisestate.edu.

1.        _____ Business Plan Narrative, if SBA backed loan

2.        _____ Financial Projections Spreadsheet forecasting the next two years, if SBA backed loan

3.        _____ Resumes for all owners with 20% or more ownership in the business

4.        _____ Resumes for other leadership team members

5.        _____ Entity Filings for the business, including any Assumed Business Name filings

6.        _____ Operating Agreement or relevant bylaws / partnership agreements

7.        _____ Past 3 years of business tax returns

8.        _____ Past 3 years of business financial statements (balance sheet and P&L)

9.        ______Interim business financial statements (balance sheet and P&L)

10.  ______Business debt schedule (include copies of loan notes if request is for debt refinance)

11.  ______Business bank statements for most recent 3 months

12.  ______Accounts Receivable aging reports, if applicable

13.  ______Past 3 years of personal tax returns for all owners with 20% or more ownership

14.  ______ Past 3 years of personal tax returns for any loan guarantors

15.  ______ Other items, depending on project to be financed

16.  _______ Tenant Improvements for Leased Space require letter of intent or lease agreement, contractor bids and architectural drawings, and other items at bank’s request

17.  _______ Business Acquisitions require a letter of intent or a purchase and sale agreement, last 3 years of seller’s business and personal tax returns, past three years of seller’s financial statements, seller’s equipment list and inventory list (if applicable), and other items at a bank’s request

18.  _______ Commercial Real Estate Purchases require a letter of intent or purchase and sale agreement, contractor bids and architectural drawings (if applicable), and other items at a bank’s request

In this episode

• 00:00 The no from the bank is the business talking about itself

• 01:17 The real reason owners get turned down

• 02:52 What to fix before you walk in: clean books, clean categories

• 04:23 The tax number and the real number

• 05:33 Relationship banker or transactional banker, and how to tell

• 08:29 The owner who was ready and the owner who was hoping

• 12:10 The handful of numbers you should be able to answer cold

• 13:47 Fear, avoidance, and why owners wait until the runway is gone

• 17:00 Seller readiness, cold feet, and the underwriter who never meets you

• 20:29 The pre-flight checklist, and building a business that runs without you

Main takeaways from Karen:

1. “Before they approach the bank, it's like a job interview. You want to be really prepared so you make a great first impression.”

2. “The loan package is a reflection of the business owner and the business itself.”

3. “They have to make this business operational without being present in everything. It has to be able to run like a machine.”

What to do with this

Have the tax conversation with your CPA before you need the loan. Minimizing taxable profit and proving profitability to a lender pull in opposite directions, and the year you file is the year the bank underwrites.

Keep personal expenses out of the business. A commingled ledger creates questions in the underwriter's mind before anyone reads the numbers.

Write down the assumptions behind your projections. If you do not explain how you arrived at the numbers, the underwriter will supply their own.

Interview the banker. Ask whether they have done your type of loan before, and treat their questions as an attempt to understand the business rather than an attack on it.

Be able to answer the basics without looking them up: profit as a percentage of sales, cost of goods, overhead as a percentage of sales, and where you want the business in five years.

Put the numbers on the calendar as protected time. What gets calendared gets done, and a business that runs without the owner in every decision is both easier to fund and worth more to a buyer.

Transcript

Available upon request at hello@silveriawealthgroup.com

About the host

What You Built is hosted by Casey Silveria, founder of Silveria Wealth Group, LLC, a fee-only fiduciary registered investment adviser in Boise, Idaho, working with business owners and the advisers who guide them.

Karen Appelgren, Associate Region III Director and Senior Business Consultant, Idaho Small Business Development Center: https://idahosbdc.org and https://www.linkedin.com/in/karenappelgren/

If you built a business, or you guide the people who did, and you belong in this room, book a time at meetwithcasey.com.

Silveria Wealth Group, LLC is a registered investment adviser with the State of Idaho. Registration does not imply a certain level of skill or training. This episode is for educational purposes and is not investment, tax, or legal advice. The views of guests are their own and do not represent an endorsement of Silveria Wealth Group, LLC or its services. Investing involves risk, including the potential loss of principal.