Bankers speak one language – business owners speak a different one – when they get together without a translator, the result is usually frustration.
Don’t make assumptions
1) Don’t assume that logic or reason are important to the lender – The most popular argument to a banker when asking for a loan is, ‘I opened my account at this institution when I was a kid and I have made every payment on every loan on time – therefore lend me some more money please.’ Bankers are thinking, ‘I have a lot of paperwork to fill out for you, how can you make it easy to complete so I am not late for my lunch!’
TIP: Make it easy for bankers to complete their paperwork. Your application flows through the bank like meat through a grinder. You need to prepare and input the correct information into the top so the lender can turn the handle and produce a loan for you out the bottom.
2) Banks are typically “bricks and mortar” lenders – A business owner will say to the banker, ‘I have a great business idea, I know it will work and I have a track record of making money.’ The banker is thinking, “Who am I going to sell your stuff to after you fail in business so I can get my money back?”
TIP: Consider what hard assets you can provide to the bank as security. They are not risk-takers and rather lend against equipment or property. Accounts Receivable is bankable and sometimes inventory. Match your request to the type of loan that they want to lend you. If it is easier for the bank to do a $25K term loan than a $25K line of credit, then ask for the term loan.
3) Business owners often find something to purchase in the morning and would like the loan approved in the afternoon. Worse than that, they run out of cash in the morning and ask for more money the same afternoon. If you don’t give a banker enough time to process your application they will just say no.
Be proactive and prepared
TIP: Be proactive in planning for your loan requests. For example, bankers typically do an annual review of your file. If you advise them before the annual review that you may be spending $250K on capital purchases this next year, you can ask them to pre-approve the loan. There will still be paperwork to complete at the time of purchase, but at least the banker doesn’t have to re-review your entire file for the new request.
My clients and I are often frustrated by the banking process. All it really does is re-enforce the importance of building the financial strength of your business so you don’t need your banker anymore!
How do you know when your business has sufficient financial strength? When your banker calls you up and asks, ‘Do you need us to lend you any money?’!
BONUS TIP: Take your accountant or business advisor to the bank with you to translate. It really does make a difference!