The Small Businessman 
 
 HIS BANK 
 
 U. S. DEPARTMENT OF COMMERCE 
 
\ I &< z o& ; <£ f 
 
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 UNITED STATES DEPARTMENT OF COMMERCE 
 W. AVERELL HARRIMAN, Secretary 
 
 The Small Businessman 
 
 and 
 
 HIS BANK 
 
 By 
 
 GERALD M. FRANCIS 
 
 Office of Small Business 
 
 Economic (Small Business) Series No. 64 
 
 UNIV. OF FLLH. 
 
 i A Ki 4 
 
 U.S. DEPOWTOKY 
 
 UNITED STATES 
 
 GOVERNMENT PRINTING OFFICE 
 
 WASHINGTON » 1947 
 
 For sale by the Superintendent of Documents, U. S. Government Printing Office 
 Washington 25, D. C. - Price 10 cents 
 
foreword 
 
 This booklet is designed to provide information and suggestions to 
 small businessmen on bank loans — an important phase of their opera- 
 tions. It should be particularly useful to individuals who are planning 
 to enter new businesses or have just established them. 
 
 Care has been taken to verify the contents with a number of represent- 
 ative bankers in order to ensure an accurate picture of bank lending as 
 an aid to small business. 
 
 The Department of Commerce, through its Office of Small Business, 
 expresses its appreciation to the individuals and banks that assisted by 
 giving their advice and suggestions on the manuscript. 
 
 This publication was prepared in the Finance and Tax Division with 
 the collaboration of J. C. Dockeray, Assistant Chief, and the general 
 supervision of J. M. Rountree, Chief. 
 
 James L. Kelly, Director, 
 
 Office of Small Business. 
 
 October 1947. 
 
 II 
 
s 
 
 ummaru 
 
 When planning to start your own business, one of your first considera- 
 tions should be its financial requirements and possible sources of capital. 
 Business capital may be derived either from your own savings or in part 
 from loans secured by a mortgage on assets or unsecured except by your 
 own signature. 
 
 If yours is a new or recently established concern you will need to rely 
 mainly upon your own capital contribution and on your personal relia- 
 bility and business ability as bases for credit. This is because most 
 commercial bankers are reluctant to make unsecured loans to new busi- 
 nesses in which a proprietor has placed little or no capital of his own. 
 If, however, you have operated for a period of years you may cite earn- 
 ings records, sales growth, and the favorable position of the industry, in 
 addition to any collateral you may possess, as evidence of security for 
 repayment. 
 
 In general, banks require small business applicants for loans to show 
 evidence of: 
 
 (1) Good personal character and reliability; 
 
 (2) Sound business ability and judgment; 
 
 (3) Success in past undertakings; 
 
 (4) Some property or assets not already mortgaged and available as 
 
 security: 
 
 (5) Working capital sufficient for minimum needs; 
 
 (6) Intention to use a loan productively. 
 
 If you, as an applicant, can show reasonable soundness on the above 
 points, your bank will probably make a loan commitment. Bank lending 
 ranges widely from about $1 for every $4 the enterpriser has invested, 
 to as much as $2 for each $1 of proprietor's equity. In normal cases, if 
 a projected enterprise is sound and the owner has an acceptable record, 
 many banks will advance without security other than a personal note on 
 either a 1 to 3 or 1 to 4 ratio to the equity capital in the business. This 
 is provided the majority of the equity is in the form of safe current assets 
 such as inventory and receivables. When the bank takes a lien on con- 
 servatively valued assets belonging to the borrower the ratio of loan to 
 the equity is usually higher. 
 
 Persons, like yourself, who desire to apply for business loans should 
 have definite ideas of how much money is required, the specific purposes 
 of its use, and how the earning power of the business will be increased by 
 reason of the loan. Moreover, you should present complete and intelli- 
 
 III 
 
gible statements showing your existing financial condition. If the business 
 has not had satisfactory accounting service and its records are in a neg- 
 lected state, it is advisable to have an accountant prepare formal state- 
 ments summarizing the past operations. 
 
 If your business is new, there is usually no need for special financial 
 statements other than the data required by the lending bank's forms. 
 Since new businesses obtain credit consideration mainly on the basis of 
 soundness of the projected enterprise, reputation of the promoter, and 
 the amount of his investment in relation to the amount of loan requested, 
 it is wise for new enterprisers to submit full information on these points. 
 
 Whatever the character or degree of your need for credit, you as a new 
 email businessman will benefit from acquaintance with your local banker. 
 His institution specializes in financing plans and methods. Its officers 
 have usually had wide experience over many years with varieties of con- 
 cerns. Any beginning or experienced businessman cannot fail to benefit 
 from the habit of regular consultation with his bank. 
 
 IV 
 
Co 
 
 contents 
 
 Page 
 
 Foreword II 
 
 Summary Ill 
 
 The Small Businessman and His Bank 1 
 
 Desirable Characteristics of a Credit-Worthy Business 1 
 
 Typical Business Situations Requiring Credit 2 
 
 Banks' Requirements for Prospective Borrowers 3 
 
 Types of Financial Data and Forms Required by Lenders. . . 4 
 
 Your Obligation to Your Bank 6 
 
 Principal Types of Loans Available from Banks 7 
 
 Short-term loans 7 
 
 Term lending 8 
 
 Types of short-term loans 8 
 
 A General Credit Basis for Small Business Loans 9 
 
 Exhibits: 
 
 Form 1 — Sample Form of Balance Sheet 10 
 
 Form 2 — Sample Form of Profit and Loss Statement 11 
 
 Form 3 — Sample Loan Application Form 11 
 
Digitized by the Internet Archive 
 
 in 2012 with funding from 
 
 University of Florida, George A. Smathers Libraries with support from LYRASIS and the Sloan Foundation 
 
 http://www.archive.org/details/smallbusinessmanOOunit 
 
The Small Businessman and 
 His Bank 
 
 Small businessmen generally are not as familiar as they should be with 
 the opportunities lor borrowing needed funds which are available to 
 them through the business loan policies, programs, and requirements of 
 banks in their localities. This statement is especially true of individuals 
 just starting their own businesses. Such a situation is detrimental to 
 the best interests of both bankers and businessmen. 
 
 Banks ordinarily are interested in making as many business loans as 
 they safely can. This is one of their long-time functions and a potential 
 source of their income. However, in order to make loans with a high 
 degree of safety and protection for the depositors who supply the bulk 
 of bank funds, bankers need clear and dependable facts concerning the 
 businesses which ask for loans. 
 
 The proprietor of a small business with a well -organized set of books 
 and financial statements based on a practical system of accounts will 
 usually have little difficulty in providing his banker with concise and 
 understandable statements of condition. Such a system of accounts is 
 not found in many small concerns, even in those which have been operating 
 for some time. Its absence is usually the first and basic evidence not 
 only of a weakness in financial policy but also in over-all management 
 skill. 
 
 Desirable Characteristics of a Credit-Worthy Business 
 
 When you start your business you should, in the interest of maximum 
 success, formulate in your mind the indispensable steps which will lead 
 to your eventual growth rather than to failure. When you have done 
 this preliminary planning you will not only have improved your survival 
 chances but also have established foundations for favorable bank consid- 
 eration when a loan is needed. 
 
 There are at least three requisites for your business if it is to become, 
 and remain, successful. First, you should analyze the market in which 
 you plan to operate in order to assure attainment of a sales volume suffi- 
 cient to produce a net return on the funds and effort to be applied. This 
 step involves planning your operations in a field and on a basis that will 
 permit sufficient gross margin to cover all costs, including taxes, and 
 leave a net profit. Under present tax levels, every businessman should 
 
inform himself regarding the extent to which taxes, both State and Fed- 
 eral, will consume any profit from operations. Since taxes accrue and 
 become liabilities upon a business even before their due date, it is also 
 important for a business to know at any particular time the types and 
 amounts of its tax liability. 
 
 Second, your enterprise must have some basic, long-term or risk capital 
 supplied and controlled by you as its proprietor. This is desirable so 
 that you may have a sufficient financial stake to retain control over your 
 business and its policy. 1 
 
 Third, all your decisions on matters of organization and policy affecting 
 management and all records of past operations should be kept in such 
 form as to be presentable to financial institutions when requests for loans 
 are submitted. Most businesses at some time in their operations need 
 to obtain loans for long or short periods. At such times clear records of 
 officially approved policies and of operating results are essential to favor- 
 able credit action by banks. Businesses that maintain adequate records 
 frequently are found also to operate more effectively and therefore to 
 need fewer loans, particularly for emergency purposes. 
 
 Typical Business Situations Requiring Credit 
 
 Many situations arise which cause individuals and concerns to need 
 business credit. Some principal ones are: (1) Increasing working cap- 
 ital funds; (2) expanding or revitalizing a business already owned; (3) 
 buying out an established concern; and (4) entry into a new business. 
 
 Examples of specific purposes for which small businesses may need 
 loans are: 
 
 Building up inventory 
 
 Adding new lines 
 
 Expanding production 
 
 Buying an interest in another business 
 
 Buying out a partner 
 
 Effecting operating economies 
 
 Financing new equipment 
 
 Making repairs and modernization 
 
 Some of the above purposes requiring bank credit call for longer term 
 loans than many commercial banks customarily make. For example, 
 expanding fixed facilities or buying out an established concern necessi- 
 tates a commitment running more than a year. When you as an enter- 
 priser must borrow for such purpose to supplement risk capital, your 
 demand is for a term loan running usually 2 to 3 years. An increasing 
 number of banks are attempting to accommodate such longer term loans 
 where adequate security and prompt curtailment payments can be 
 assured. 
 
 1 For the benefit of individuals who are planning, or in the early stages of, small business operations, the 
 Office of Small Business has in preparation a circular on financial considerations in establishing a new small 
 business. 
 
Shorter term loans ranging from 60 to 1JJ0 days and designed for oper- 
 ating purposes are directly in the special field of commercial banks and 
 are desired by them. Small businessmen may depend on their bankers' 
 interest in making such loans wherever the risk is not too great. Natu- 
 rally the banker must be the judge of the degree of risk and consequent 
 chance of repayment of the loan. 
 
 Banks 9 Requirements for Prospective Borrowers 
 
 Credit standards and requirements of banks vary with the type, condi- 
 tion, and size of borrowers. One of the principal requisites of credit to 
 small businesses is the personal and moral character of borrowers. The 
 character factor is given more emphasis on small business loans than on 
 loans to large businesses. This is because the smaller enterprises are 
 frequently weaker in liquid assets and, at the same time, more dependent 
 upon the character and reliability of one or two key individuals. 
 
 According to published statements of bankers, their standards for 
 business credit to smaller enterprises are generally the following: 
 
 (1) The borrower must be an excellent moral risk. 
 
 (2) There must be evidence that he has the ability to operate his 
 
 business on a sound basis. 
 
 (3) The past record of the business and its prospects must indicate 
 
 sufficient probable income to enable the borrower to repay 
 the loan out of future income from or realizable assets in his 
 business. 
 
 (4) While a normal risk may be assumed on loans of this type, neces- 
 
 sary steps must be taken to insure the bank against losses 
 greater than can be absorbed profitably in the usual course 
 of business. 
 
 In making certain of the factual information on the above points, a 
 bank will thoroughly examine you and your business statements. 
 
 First, a personal inquiry is made to reveal complete information about 
 you as an individual. This is done through reference to your private 
 life, mode of living, associations, and family and community interests and 
 responsibilities, as well as your business reputation. 
 
 Second, the bank estimates your business ability and record by means 
 of both a personal interview with the loan officer and a study of your 
 financial and operating data submitted on bank forms. An appraisal of 
 your past business operations will include, among other factors, analysis 
 of the efficiency of various operations under your direction, the care with 
 which you watched output and operating margins, and the performance 
 of the various departments of your organizations. A further point of 
 interest will be the extent to winch you have withdrawn profits from the 
 business for personal use, thus reducing the capital available for expan- 
 sion. 
 
 If you desire to obtain a small loan of $1,000 to §5,000, for example, 
 to be repaid in monthly or other regular installments, you will need to 
 
demonstrate past success in realizing net profit from your business. In 
 looking at the loan proposal, the banker will analyze it in terms of en- 
 abling your business to sell more merchandise, render more services, or 
 otherwise increase its income. Your business ability will thus be analyzed 
 by the banker through personal appraisal and statement analysis in the 
 process of determining prospects for repayment of the loan. 
 
 If you are borrowing some funds to assist in starting a new business, 
 the lending institution may rely more on your character and personal 
 standing in your community. In addition, the economic status of the 
 business line which you propose to enter and profit possibilities for a new 
 enterprise will be considered in arriving at a decision on the loan appli- 
 cation. 
 
 In thus appraising repayment prospects of your loan, the banker is 
 vitally concerned with your success as a borrower. The bank's interest, 
 accordingly, leads in many instances to detailed familiarity with borrow- 
 ing concerns and ability to advise on their special problems. This ad 
 vantage to small businesses, growing out of bank borrowing, is extremely 
 worthwhile. It is a type of contact and benefit which is found more 
 commonly among large businesses than among small ones. The sooner 
 small concerns, or individuals just entering business, can establish 
 banking relationships with their local banks regarding their financial 
 needs and problems, so much earlier in their careers may they avoid serious 
 errors and obtain sound and experienced advice. In making this contact 
 the businessman should aim to deal with a bank which specializes in 
 commercial and industrial loans. 
 
 Types of Data and Forms Required by Lenders 
 
 Banks considering applications for loans require submission of state- 
 ments showing basic condition of the applying business. Information 
 requested consists, in most instances, of a statement of assets and liabil- 
 ities, at least a skeleton statement of profit and loss for the latest com- 
 pleted fiscal year, and certain other information obtainable by means of 
 specific questions on a loan application form. 
 
 One of the first statements which a small business should be prepared 
 to make up and submit is its statement of assets, liabilities, and proprie- 
 torship. This statement preferably should show the financial position 
 of the business at the latest year end compared with the previous 12- 
 month year end. Such a statement is presented in Form 1. (See p. 10.) 
 It shows in compact and simple form the main items and subdivisions 
 of a standard balance sheet. For those businessmen unfamiliar with 
 such statements, notice should be taken of the following features: 
 
 (1) Assets are listed before liabilities and proprietorship. 
 
 (2) Current assets (those representing cash or items which normally 
 
 will convert to cash in a period of 60 to 90 days) are itemized 
 first and a total of them is entered. 
 
(3) Fixed assets are listed by major types as shown and any reduc- 
 
 tion in valuation through depreciation should be reflected in 
 a net figure after depreciation. In this connection, deprecia- 
 tion is the extent to which fixed assets have declined in value 
 below the cost figure. Depreciation is customarily figured 
 annually at the end of ihe fiscal year and is shown as a ded uc 
 tion from the original cost. 
 
 (4) Other assets refer to various properties which differ to some ex- 
 
 tent with type of business. Slow receivables represent those 
 accounts which have run beyond the normal period without 
 being collected, thus losing their current character. Prepay- 
 ments are assets acquired through advance payments of ex- 
 penses thus representing claims upon goods or services for the 
 future. 
 
 (5) Liabilities, like assets, are classified into current and long-term 
 
 or fixed. Current liabilities consist of debts running for 
 periods up to one year and are usually comprised of notes 
 payable and accounts payable. They are shown both itemized 
 and in total so that, by quick inspection and comparison with 
 current assets, the. current position or ratio of the business can 
 be known. The standard of current position has generally 
 been stated as $2 of current assets to each $1 of current liabili- 
 ties, but it varies considerably from this figure for businesses 
 of various types and sizes. Fixed liabilities are debts incurred 
 and running for periods longer than 1 year. 
 
 (6) Proprietorship is the ownership by the proprietor, or enterpriser, 
 
 and is customarily measured by the amount of unassigned 
 asset values in the business after claims of creditors are satis- 
 fied. This ownership may apply to one proprietor, to two or 
 more partners, or it may consist of capital stock shares held 
 by numerous individuals who comprise the stockholders of a 
 corporation. 
 
 (7) The total of all liabilities of a business plus the proprietorship 
 
 represents in dollars the exact value of all assets. This is 
 because the liability and proprietary items comprise the total 
 property claims to total assets. 
 
 The balance sheet, when properly prepared, presents essential informa- 
 tion to show the true financial condition at a particular date. This 
 means that the balance sheet reflects the results of past periods of opera- 
 tion, but it does not show the specific gain or loss of a particular period 
 except, perhaps, for the latest completed fiscal period. It is customary 
 to show in each year-end balance sheet the amount of new increase or 
 decrease in proprietary ownership resulting from operations of the last 
 fiscal periods. This is done by listing the net income or loss as a sub- 
 item to the previous year-end proprietorship figures. (See Form 1.) 
 
A standard form of profit and loss statement is shown in Form 2. (See 
 p. 11.) This statement provides a summary of the operations of a busi- 
 ness for a given period, either a fiscal year, or a fraction of a year. Prin- 
 cipal information provided on a profit and loss statement includes the 
 sales volume, gross and net, cost of goods sold, gross profit from sales — 
 which comprises the excess of the sales receipts over the costs of goods 
 sold — and the expenses incurred in operating. The balance left after 
 deducting expenses from gross profit is the net operating profit. Addi- 
 tions to and deductions from net operating profit are made to reflect 
 other income and expense. The result is the final or net income. 
 
 The profit and loss statement reflects the success of a business in terms 
 of earning capacity. A comparative statement of profit and loss for the 
 last 2 or 3 years is usually desired by a bank which is considering a loan 
 to an established business. (See Form 2.) New businesses, of course, 
 have no operating record and can submit only data on general plans and 
 capital committed to the enterprise. 
 
 Form 3 (see p. 11) is a sample loan application form of the general type 
 used by commercial banks in accepting requests for business loans. This 
 blank calls for three types of information: (1) General facts about the 
 business; (2) financial and operating data from records of the business; 
 and (3) personal data regarding the proprietor, manager or officers who 
 are responsible for policies and management. 
 
 Form 3 does not call for as detailed information as some banks require 
 for loans to businesses, especially if the loan exceeds a nominal amount of 
 about $1,000. Many small banks, however, consider and extend small 
 loans on the basis of much less information than is called for in the sample 
 loan application. For larger loans, banks usually require more complete 
 financial and operating statements as illustrated in Forms 1 and 2. 
 
 Your Obligation to Your Bank 
 
 When your business needs a loan you should supply the bank with as 
 complete information as your records will permit. This step is pre- 
 requisite to the more complete investigation to be made by the bank. 
 The bank will survey the general condition of the business as shown by 
 a preliminary interview with you and by your written application; it will 
 then complete a more thorough investigation of the business if your 
 application appears attractive. This will result in a detailed verification 
 of the data you recorded in your loan application. 
 
 Businesses which require financial assistance through loans will do well 
 to establish banking connections well in advance of that need. It will 
 be to your benefit to become acquainted with the forms and procedures 
 required by your own bank. If you do not already have a business 
 banking connection, you should investigate the loan policies and practices 
 of more than one bank. When you have decided which bank is best 
 suited to your requirements, you may find it most advantageous to deal 
 solely with it. 
 
Each commercial bank has certain routine procedures for handling 
 loan applications and these usually follow a standard pattern in most 
 banks. It is important, however, that borrowers keep informed of the 
 special loan requirements and standards of their own bankers and con- 
 form to them in submitting loan applications. One of the most commonly 
 mentioned causes for refusal by banks of loan applications is the incom- 
 pleteness and lack of clarity in presentation. 
 
 Banks desire to develop their volume of loans whenever the funds so 
 loaned can be used for productive purposes. During this current period 
 of postwar prosperity, bank loan publicity has included proposals for 
 developing new or better loan processes and services, as well as other 
 improvements, for businessmen who require funds. The individual 
 businessman must be the judge of whether a bank loan to finance new 
 equipment or fixtures, to renovate a store building, or to facilitate pur- 
 chase of merchandise on a cash discount basis will be justified by the 
 increased income to be expected therefrom. You may usually obtain 
 sound advice on such subjects from an experienced local banker familiar 
 with the business community in which you are operating or plan to 
 operate. 
 
 Principal Types of Loans Available From Banks 
 
 Since the end of the war in 1945, the commercial banks in the United 
 States have undertaken a broad program of making their loan services 
 easily available to businesses which need them. The over-all promotion 
 work incidental to this credit program has been done by the Small Business 
 Credit Commission of the American Bankers Association. It is the aim 
 of this group to help commercial banks to provide a complete line of 
 major types of loans that may be needed by various classes and conditions 
 of business. 
 
 Short-term loans. — The usual field of bank credit has been that of short- 
 term loans running for periods up to about 1 year. Banks make these 
 short-term loans for working capital purposes. These include funds for 
 meeting pay rolls, for financing inventory purchases, or for acquisitions 
 of new equipment which can be paid for within about 1 year. The banks 
 normally exercise extreme care in granting loans on inventories in order 
 to avoid losses either to themselves or to the borrowers through excessive 
 inventory acquisitions in periods of high or rising prices. 
 
 The short-term lending policy of banks also is always closely dependent 
 upon regular receipts of liquid assets by a borrower through his normal 
 business operation. This means that a business must show that its sales 
 of merchandise, or its collection of receivables and other productive 
 activities resulting in its receipt of liquid assets, will put it in possession 
 of funds sufficient to pay its loans within their maturity periods. 
 
 When banks extend short-term loans to small businesses they ordinarily 
 require collateral of various types. The loans may be secured by real 
 estate or other fixed assets, by materials or inventory in warehouse, by 
 
notes endorsed by responsible persons, or by sales contracts which require 
 cash receipts to be allocated to the servicing of specific loans. Banks 
 also use credit agreements that limit withdrawals and salaries of pro- 
 prietors in order to enforce the security behind their loans. Such require- 
 ments usually benefit the borrowing business as well as the creditor and 
 should be carefully observed. 
 
 Term lending. — Term lending, as contrasted with short-term loans, 
 designates the field of longer-period credit. Commercial banks have 
 entered this field increasingly since the early 1930's. This type of credit 
 extension traditionally embraces all loans having final maturity exceeding 
 1 year and ranging, in a few exceptional cases, as high as 10 years. Term 
 lending is probably one of the most important newer credit devices intro- 
 duced into commercial banking practice during the past 15 to 20 years. 
 Term loans by banks arose mainly from the disappearance of the market 
 for longer term securities of small businesses. Obtaining a term loan from 
 a bank often involves tying up both the fixed assets, and, in many cases, 
 liquid assets otherwise not pledged or later acquired. For this reason, 
 a business needs to be in excellent financial condition in respect to liquid 
 or working assets in order to qualify for a commercial bank loan on a 
 term basis as long as 3 years or more. 
 
 The outstanding characteristic of such term loans is the fact that the 
 lender places more emphasis upon the prospective and sustained earning 
 power of the applicant and less upon any specific collateral security for 
 the loan than is the case with other types of bank credit. Thus far, 
 however, private term loans have been largely limited to gilt-edged in- 
 vestments and relatively few have been granted to smaller firms. 
 
 A type of loan which classifies as term is installment equipment financ- 
 ing conducted by both commercial banks and commercial finance com- 
 panies. These loans are for the purpose of financing purchases of income- 
 producing machinery and equipment and are amortized by regular in- 
 stallment payments, usually over a period of 24 to 36 months or, in the 
 case of expensive machinery, 48 to 60 months. More and more commer- 
 cial banks are engaging in installment financing of fixed equipment. 
 Small businessmen should consult their own bankers when interested. 
 
 Types of short-term loans. — Among the types of short-term loans now 
 available at many commercial banks are those secured by accounts re- 
 ceivable and those for which warehouse receipts are used as collateral. 
 Each of these has its own advantages to different types of borrowers. 
 
 Accounts receivable financing, until recent years, has not been impor- 
 tant in commercial banking. It was developed by the type of commercial 
 financing companies known as factors, who purchase or take over receiv- 
 ables on a nonrecourse basis. More recently, some commercial banks 
 have expanded their activities in the field of accounts receivable financing. 
 These activities are usually restricted to loans "collateralized" by high- 
 grade receivables. 
 
 8 
 
Cost of this type of credit to borrowers obviously varies with the quality 
 of accounts pledged and whether the lender has recourse to the borrower 
 for uncollectible accounts. Financing of accounts receivable by finance 
 companies has been provided, for the most part, to larger manufacturers 
 and processers of goods on their customers' accounts. The smallest 
 enterprises have not been important in the development of accounts 
 receivable financing. However, with the increase of interest of commer- 
 cial banks in developing this type of loan on a secured basis, small con- 
 cerns having bankable accounts receivable should consult their bankers. 
 
 Financing by means of pledging warehousing receipts is a convenient 
 method of obtaining working capital in certain lines of business. Wher- 
 ever small concerns are dealing, or expect to deal, in commodities which 
 can readily be warehoused for periods of 6 months to 3 years, they will 
 find warehouse receipts a useful means of obtaining working capital. 
 The average life of field warehousing agreements has been estimated at 
 from a few months to a year or more. Duration of these agreements 
 depends, obviously, upon the type of commodity, price trends, and other 
 similar market factors. 
 
 The duration of loans made by commercial banks on the security of 
 field warehouse receipts is definitely limited. This is because the banks 
 in this as in other lines of credit, aim to keep their extensions maturing 
 in relatively short periods. Since there is a certain minimum outlay 
 required to set up a field warehousing system, usually a borrower must 
 offer a sufficient volume of business in order to obtain commercial bank 
 consideration. It has been found that loans of less than §10,000 to 
 $15,000 are not generally practicable. Accordingly, there is a distinct 
 limit on the extent of use of this type of financing by smaller concerns. 
 
 It has been estimated that about 15 percent of the insured commercial 
 banks in the country now regularly extend credit through loans on ware- 
 house receipts. Most of the firms making use of this type of credit have 
 total assets ranging between $25,000 and $200,000. Thus they are small 
 firms but not the smallest. The aggregate cost of this type of financing 
 varies from 5 to 10 percent, annually, depending upon the market for the 
 commodity warehoused, the prospect of price fluctuation, risk of com- 
 modity deterioration, and the credit standing of the borrower. Producers 
 and distributors of commodities readily warehoused may rely upon this 
 source of funds for working capital when it is needed. 
 
 A General Credit Basis for Small Business Loans 
 
 Aside from the special types of credit discussed immediately above, 
 proprietors of commercial and industrial businesses, both new and already 
 established, must depend upon the basic soundness of their whole business 
 undertaking and their record of past earnings as their most important 
 claim for credit consideration. If your business is already well estab- 
 lished and has adequate financing of its own for its fixed or long-term 
 capital, and in addition has shown a regular expansion in its volume of 
 
operation and in earnings, normally you should have no great difficulty 
 obtaining short-term bank credit for its seasonal capital needs. However, 
 if yours is a newer concern whose working funds are not yet abundant, 
 it will be necessary to pledge certain of the assets of the type already 
 discussed in order to obtain short or longer-term finances. 
 
 As stated earlier, the ability of businesses to supplement financial 
 resources depends to a considerable degree upon the extent and character 
 of the capital invested by the proprietor. Where this basic capital is 
 adequate at the start to provide the basic fixed assets of the business or 
 the working capital — in a concern that does not require its own fixed 
 assets — and where your management demonstrates its capacity in pro- 
 ducing satisfactory earnings, you will ordinarily find it possible to obtain 
 bank financing on some one of the methods outlined in this bulletin. 
 
 Form 1. — (Sample form of balance sheet) 
 BLANK WHOLESALE GROCERY CO. 
 
 COMPARATIVE BALANCE SHEET 
 
 Assets At close of business 
 
 Dec. 31, 
 Current assets: 19 — 19 — 
 
 Cash $XXX $XXX 
 
 Accounts receivable XXX XXX 
 
 Inventory XXX XXX 
 
 Total current assets XXX XXX 
 
 Fixed assets:. 
 
 Equipment (after depreciation) XXX XXX 
 
 Real estate (after depreciation) XXX XXX 
 
 Total fixed assets XXX XXX 
 
 Other assets: 
 
 Slow receivables XXX XXX 
 
 Prepayments XXX XXX 
 
 Total assets XXX XXX 
 
 Liabilities and proprietorship 
 
 Current liabilities: 
 
 Notes payable XXX XXX 
 
 Accounts payable XXX XXX 
 
 Total current liabilities XXX XXX 
 
 Mortgage payable XXX XXX 
 
 Proprietorship: 
 
 Proprietor's capital 1 XXX XXX 
 
 Profit for year XXX XXX 
 
 Total liabilities and capital XXX XXX 
 
 1 This item shows the equity claim of the proprietor of a single enterprise over assets after allowance for 
 creditors' claims. In an incorporated business the proprietary claim iB shown in the form of issued common 
 and/or preferred stock and surplus. 
 
 10 
 
Form 2. — (Sample form of profit and loss statement) 
 BLANK WHOLESALE GROCERY CO. 
 
 COMPARATIVE PROFIT AND LOSS STATEMENT FOR YEARS ENDING DEC. 31, 19 and 19 
 
 19— 19— 
 
 Gross sales $XXX $XXX 
 
 Less sales returns and allowances XXX XXX 
 
 Net sales XXX XXX 
 
 Opening inventory $XXX $XXX 
 
 Plus purchases XXX XXX 
 
 Total goods to be accounted for XXX XXX 
 
 Less closing inventory XXX XXX 
 
 Cost of goods sold XXX XXX 
 
 Gross operating profit XXX XXX 
 
 Expenses: 
 
 Selling XXX XXX 
 
 Admin, and general XXX XXX 
 
 Total expenses XXX XXX 
 
 Operating profit XXX XXX 
 
 Add other income: 
 
 Interest earned XXX 
 
 Recoveries on had accounts XXX 
 
 Rentals XXX 
 
 Miscellaneous XXX XXX 
 
 Deduct other expenses: 
 
 Interest cost XXX 
 
 Sales discount XXX XXX 
 
 XXX 
 XXX 
 XXX 
 XXX 
 
 XXX 
 
 XXX 
 XXX 
 
 XXX 
 
 Net income XXX XXX 
 
 Form 3 
 
 THE BLANK COMMERCIAL BANK 
 
 Loan application form Loan Department 
 
 City State Date 
 
 The undersigned hereby submit application and financial statement for a loan of 
 
 dollars ($ ) repayable in . . days, or in . . monthly instalments 
 
 beginning 1 month from date of this loan, or on the following date 
 
 for the purpose of: 
 
 11 
 
Form 3 — Continued 
 
 BUSINESS RECORD 
 
 Name of business Kind of business 
 
 Address 
 
 Year established 
 
 Annual rent Lease expires 
 
 Name of bank used by business 
 
 □ Corporation 
 
 □ Partnership 
 
 □ Proprietorship 
 
 PRINCIPALS 
 
 Name 
 
 Home address 
 
 Married □ Single □ Separated □ 
 
 Age 
 
 Previous home address 
 
 Pers. ckg. acct 
 
 Savings acct 
 
 Membership in what business organiza- 
 tions 
 
 Am't. of life ins 
 
 Present beneficiary 
 
 Name 
 
 Home address 
 
 Married □ Single □ Separated □ 
 
 Age 
 
 Previous home address 
 
 Pers. ckg. acct 
 
 Savings acct 
 
 Membership in what business organiza- 
 tions 
 
 Am't. of life ins 
 
 Present beneficiary 
 
 FINANCIAL STATEMENT AS OF 
 
 Assets 
 
 Cash in hand 
 
 Cash in bank 
 
 Accounts receivable 
 
 Notes receivable 
 
 Merchandise 
 
 Total current assets. . . 
 
 Land and buildings 
 
 Machinery and equipment. . . . 
 Autos and trucks 
 
 Total fixed assets 
 
 Cash surrender value of life in- 
 surance 
 
 Investments 
 
 Other assets 
 
 Total other assets 
 
 Total assets . 
 
 Liabilities and net worth 
 
 Accounts payable $ . 
 
 Notes payable to banks 
 
 Notes payable to others 
 
 Chattel mortgages 
 
 Conditional sales contracts 
 
 Unpaid taxes 
 
 Mortgage realty 
 
 Other liabilities 
 
 Total liabilities 
 
 Net worth: 
 
 Valuation reserves 
 
 Special reserves 
 
 Capitol stock (or pro- 
 prietorship) 
 
 Surplus 
 
 Total net worth 
 
 Total liabilities and net worth . . . 
 
 12 
 
OPERATING DATA FOR PERIOD ENDING 
 
 Net sales (year ending 
 
 Name of Percent- 
 partners age own- 
 or officers ership 
 
 Cost of goods sold 
 
 Gross profit 
 
 Operating expenses $ 
 
 Overhead expenses 
 
 Salaries: 
 
 Proprietors 
 
 Officers 
 
 Net operating profit 
 
 Are any assets shown on your statement pledged or assigned 
 
 Yes or No 
 If so, give details . . 
 
 Are you contingently liable as endorser or guarantor 
 
 Yes or No 
 
 If so, give details 
 
 How much insurance do you carry on inventory, machinery and equipment, trucks: 
 
 Fire insurance $ Theft $ Property damage $ 
 
 Puhlic liability $ 
 
 To whom owed 
 
 Address 
 
 Present indebted- 
 ness 
 
 Bal. 
 due 
 
 Amt. 
 due 
 
 Acct. 
 
 No. 
 
 Orig. 
 amt. 
 
 each 
 month 
 
 • 
 
 
 
 
 
 
 Our accountant is: Name. 
 Address 
 
 Phone No. 
 
 Signed this day of 
 
 .,19. 
 
 O 
 
 By. 
 By. 
 
 (Name of applicant) 
 "(Title)'" 
 "(Tine)'" 
 
 13 
 
Department of Commerce 
 Field Service 
 
 (December 1947) 
 
 Albuquerque, N. Mex., 203 W. 
 Gold Ave. 
 
 Atlanta 1, Ga., 50 Whitehall 
 St. SW. 
 
 Baltimore 2, Md., 103 S. Gay 
 St. 
 
 Boston 9, Mass., 2 India St. 
 
 Buffalo 3, N. Y., 117 Ellicott St. 
 
 Butte, Mont., 14 W. Granite St. 
 
 Charleston 3, S. C, 18 Broad St. 
 
 Charleston, W. Va., 103 U. S. 
 Court House. 
 
 Charlotte 2, N. C, 112V 2 E. 
 Fourth St. 
 
 Cheyenne, Wyo., Twenty-first 
 and Carey Ave. 
 
 Chicago 4, 111., 332 S. Michigan 
 Ave. 
 
 Cincinnati 2, Ohio, Fourth and 
 Race Sts. 
 
 Cleveland 14, Ohio, Euclid Ave. 
 at E. Ninth St. 
 
 Dallas 2, Tex., 1114 Commerce 
 St. 
 
 Denver 2, Colo., 828 Seventeenth 
 St. 
 
 Detroit 26, Mich., 230 W. Fort St. 
 
 El Paso 7, Tex., 12 Chamber of 
 Commerce Bldg. 
 
 Fargo, N. Dak., 621 First Ave. N. 
 
 Hartford 1, Conn., 135 High St. 
 
 Houston 14, Tex., Fannin at 
 Franklin St. 
 
 Jacksonville 1, Fla., 311 W. 
 Monroe St. 
 
 Juneau, Alaska, Fourth and 
 Seward Sts. 
 
 Kansas City 6, Mo., 911 Walnut 
 St. 
 
 Los Angeles 12, Calif., 312 N. 
 Spring St. 
 
 Louisville 1, Ky., Sixth and 
 Broadway. 
 
 Memphis 3, Tenn., Madison at 
 Front St. 
 
 Miami 32, Fla., 36 NE. First St. 
 
 Milwaukee 1, Wis., 517 E. Wis- 
 ■ con sin Ave. 
 
 Minneapolis 1, Minn., Second 
 Ave. S. and Third St. 
 
 Mobile, Ala., 308 Federal Bldg. 
 
 New Orleans 12, La., 333 St. 
 Charles Ave. 
 
 New York 1, N. Y., 350 Fifth Ave. 
 
 Oklahoma City 2, Okla., 102 
 NW. Third 
 
 Omaha 2, Nebr., 405 S. Six- 
 teenth St. 
 
 Philadelphia 2, Pa., 42 S. Fif- 
 teenth St. 
 
 Phoenix 8, Ariz., 234 N. Central 
 Ave. 
 
 Pittsburgh 19, Pa., Seventh Ave. 
 and Grant St. 
 
 Portland 4, Oreg., 520 SW. Mor- 
 rison St. 
 
 Providence 3, R. I, 24 Wey bos- 
 sett St. 
 
 Reno, Nev., 50 Sierra St. 
 
 Richmond 19, Va., 801 E. Broad 
 St. 
 
 St. Louis 1, Mo., 1114 Market St. 
 
 Salt Lake City 1, Utah, 508 Post 
 Office Bldg. 
 
 San Francisco 11, Calif., Wash- 
 ington and Battery Sts. 
 
 Savannah, Ga., 218 U. S. Court 
 House and Post Office Bldg. 
 
 Seattle 4, Wash., First and 
 Marion Sts- 
 
UNIVERSITY OF FLORIDA 
 
 3 1262 08338 085 6 
 
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 releases, publications, speeches, pamphlets, and books 
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 your business. 
 
 Typical of the listed material that will interest you are 
 marketing data, articles on specific industries and busi- 
 ness, foreign markets, establishing and operating nu- 
 merous kinds of small business, and foreign industrial 
 wartime secrets. 
 
 Many of the items in the BUSINESS SERVICE 
 CHECK LIST are free. 
 
 ZJhe listina covers these 
 
 bureaus and \yi-ficeS: 
 
 Census Bureau 
 
 
 Office of Domestic Commerce 
 
 Civil Aeronautics Administration 
 
 
 Office of international Trade 
 
 Coast and Geodetic Survey 
 
 
 Office of Small Business 
 
 Foreign Trade Zones Board 
 
 
 Office of Technical Services 
 
 National Bureau of Standards 
 
 
 Patent Office 
 
 Office of Business Economics 
 
 
 Weather Bureau 
 
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