On Wall Street, you often hear the big money guys talking about "bullet-proofing" their portfolios.

In other words, designing your investment portfolio in such a way that even if your portfolio takes a body blow, it's easily absorbed with minimal damage to your investment assets. No investment plan is immune to losses – the idea is to limit those losses so they don't destroy your financial future.

Make no mistake, protecting your portfolio should be job one for investors, if only for good peace of mind. Research indicates that a loss causes about twice as much pain as a gain causes pleasure. During periods of market volatility, investors experience the sense of loss more acutely. For anyone with short memories, the bear market of 2000-2 is a vivid example of that.

One example of bulletproofing your portfolio comes in the form of "Hurricane-Resistant" investment portfolios.

Remember Katrina? We all do. It wreaked billions of dollars of damage along the U.S. Gulf Coast in August 2005. But some saw opportunity in tragedy. Writes Adam Shell, in a USA Today piece shortly after hurricanes Katrina and Rita hit, "ever since Hurricane Katrina crashed into the Gulf Coast, nimble traders and money managers have been reshaping their portfolios in an attempt to sidestep — and profit from — the potentially devastating one-two punch packed by Katrina and Rita."

The key in building hurricane-proof portfolios is to pick the sectors – and the companies within those sectors – that are poised to profit from natural disasters. Obviously, construction and home repair providers – think Lowes or Home Depot – might be a natural for a disaster-proof stock portfolio. Energy and utility companies can fill a niche, too.

Even clothing retailers tend to do well in natural disasters. Companies like Abercrombie & Fitch and The Gap are often the first places shoppers go to replace – what else? – their clothing lost to a hurricane or other natural disaster.

While no actual hurricane mutual fund exists today, it's highly possible to cherry pick the companies you think will grow and prosper even as most others wither on the vine after a natural disaster like Katrina or Rita.

Remember, there's really no avoiding the ebbs and flows of stock market performance. Hits are inevitable and typically occur because of a bear market, a recession, inflation fears or a currency problem. That's why the goal is to build-in protection for your capital, maybe even make a profit even when traditional portfolios are spiraling downward and still be able to beat or keep up with the markets when they are rallying.

That's why bulletproofing your portfolio is so critical – it protects you and your money and creates more opportunities to grow your investment portfolio.

Even after a hurricane.

What do the decision-makers – the banks, the credit lenders, the Small Business Administration and other financial organizations – look for when deciding whether or not to lend you money?



Actually, it's not all that complicated. The information below will give you a heads up on what more traditional financial institutions will ask for when you apply for lines of credit or loans through the Small Business Administration. The SBA, by the way, has an excellent checklist of documents needed for its loan process. 

For both types of common loans (short- and long-term), your business (or business-to-be) requires the following documentation before your loan request can be evaluated:

• A business profile. This is a written statement.  A document describing the type of business you own, and includes details, such as annual sales, number of employees, length of time in business and specifics of ownership.

• Loan request. This is a description of how you want the loan funds to be used. This statement should include purpose, amount and type of loan.

• Collateral. This gives the lender a description of the collateral you’re offering to secure the loan, including equity in the business, borrowed funds and available cash.

• Business financial statements. These are complete financial statements for the past three years as well as well as current interim financial statements.

• Personal financial statements. These are statements of all the owners, partners, officers and stockholders who owning 20 percent or more of the business.

Be sure that your financial statements are carefully prepared and up-to-date! The strength and accuracy of your financial statements will be the primary basis for the lending decision to go in your favor, so be sure that yours are carefully prepared and up-to-date.  

The most important documents in your financial statements are:

• Balance sheets from the last three fiscal year-ends.

• Income statements revealing your business profits or losses for the last three years.

• Cash flow projections indicating how much cash you expect to generate to repay the loan.

• Accounts receivable and “payable aging,” breaking your receivables and payables in to 30-, 60-, 90- and past 90-day old categories.

• Your personal financial statements from you along with statements from your business partners listing all personal assets, liabilities and monthly payments, as well as your personal tax returns for the past three years.

What to include a loan proposal…in a nutshell:

• Business name and address

• Names of principals and their Social Security numbers

• Purpose of the loan – be as specific as possible about what it will be used for?(salaries, equipment, etc.).

• Exact mount of money you need.

Business description:

What kinds of business?

History?

How many employees and current business assets do you have?

What's your ownership and legal structure?

Management:



Offer a short description on each principal…including background and education, experience, skills and accomplishments.


Market:  Demonstrate knowledge over your product(s) and where it fits in the market(s). Competition and role in the overall marketplace.
Sketch customer profile and how you business can fulfill customer needs.



How will banks review your loan proposal (in a nutshell)?

1. First and foremost, they want to see proof they will be repaid.

2. That means they'll investigate your credit.

3. Outside sources of funding (at least 25 to 50 percent) will strengthen your case.

4. Sufficient experience to pursue business enterprise.

5. Suitable cash flow for business to run.

The key? Be prepared and have both your documents and financial story in order. If so, the road to solid financing is wide open.