Does Your Banker Take You Seriously?
Three Ways to Ensure They Do!
By Kickfannie Get Money
Everybody knows the problem with achieving success in business generally comes down to the money. Of course the problem with the money is knowing how and where to get it. The Kickfannie team has interviewed tons of bankers and have heard a few resounding themes.
1. Understand your own needs. Nothing drives a lender crazier than an owner who shows up at the office to ask for a loan and says, “I need as much as I can get!” That’s a sure fire way to get off on the wrong foot. The key to a banker’s heart is to show that you know your own business, you know what kind of credit facility your business can support and you know exactly what you want to do with the money. Start with a business plan. This helps you to outline your own strategy for growth and will help you to make your case to the banker, complete with the evidence to support your line of reasoning. Next, make sure to outline your thoughts about what you’re going to do with the funds the bank loans to you. You’re buying equipment? Great! How much will it cost? Do you have any documentation about that? You want to expand operations to another location? Fantastic! How much will that build out cost? Do you have architectural drawings? General contractor’s estimates? Have you figured out exactly how much you are going to need to get launched there? Bankers can be extremely helpful to you…but they’re bankers. You be the expert of your business and tell the bank why you are asking for the money. That kind of preparation goes a long way.
2. Have a general understanding of how the lending process works at your bank of choice. The banking industry has undergone many changes, especially in a post 2008 world. Each bank makes decisions about its lending portfolio based on many factors, including things like current risks for specific industries, what’s already in their loan portfolios and even internal policy changes or regulatory requirements. Every bank has its own appetite for loans and the thought that one pretty much looks like another with regard to lending couldn’t be further from the truth. Take a moment to talk to a couple of the commercial bankers you are interested in and try to get an understanding of what it takes to get to a “yes” on an application like yours. Do that before you run around town filling out applications everywhere, however. Not only will it cut down on your drive time, but it will come in handy to know that the bank you’ve chosen is looking to work with companies like your own. Plus, in the casual conversation with bankers, you may discover that your business isn’t quite ready for traditional financing, or that banks simply aren’t in the business of financing your particular venture, or that a different type of funding will be most appropriate for the specific goal that you mean to accomplish with this borrowed capital. Knowing the lay of the land in banking will certainly help you get there with less frustration and more success.
3. Get good at understanding cash flow. At the end of the day, cash is king in the world of banking. Most banks are cash flow lenders, meaning that they aren’t looking to get into the stuff selling business if the deal goes into default. Banking is a fairly simple business, but a few basic things are certainly true. You go to see the bank because their money is cheap. You can get a traditional loan at a much lower rate than in alternative financing. The reason the money is cheap is because banks are risk averse, conservative and basing their decisions on historical trends and not future projections. This is an important thing to remember. Your hitting the banker’s office with a beautiful business plan based on future hope and opportunity but no historical cash flow will likely get you nothing but frustrated. Your hitting the banker’s office with negative or weak cash flow will get you more of that frustration because that isn’t what banks are here to provide. Get a handle on how cash flow works and what is typical for your industry. From there, you can understand what you need to do in order to get the capital you are looking for. As an added bonus, you may discover a better way to generate cash flow in the first place. Rest assured that the banker in front of you wants to make that loan, but not in a way that will hurt you more than it helps. Understand what cash flow is and how it works and you will eventually arrive at the money, whether by way of bank financing, internal sources, or by other means.