HELPING YOUR BANKER HELP YOU

Many of the frustrations faced by the business owner in pursuing bank financing can be avoided.  The key is developing a “financing package” which will motivate a financial institution to react to your request in the manner in which you desire.  If your package is lacking, you stand a very good chance of failure.  Thinking through the following elements of the package before meeting with the banker is critical.

 

Why do you need the dollars?

 

There are only four real needs:

 

Working capital, equipment purchases, business start up, and real estate purchases.

 

Each of the four must create enough of a positive cash stream to deal with the debt obligations plus an attractive increase in business profits.

 

Have alternatives been exhausted?

 

Turning receivables and/or inventory into cash can eliminate the working capital need.  Far too many businesses carry too much inventory and/or spend too little time pulling in receivables.  Their heavy dependence on outside lending is needless.

 

Compared to financing, the “leasing” of equipment can ease cash flow, improve the  balance sheet and reduce tax obligations.  Negotiating real estate financing with the seller can prove to be quite favorable.

 

How much are you willing to give for the dollars?

 

High interest rates, attachment of receivables, second mortgages, assignment of insurance policies, attachment of personal and business assets and minimum deposit balances are all possible give-ups.  The “give-ups” can turn a good program into a bad program.

 

How long will you need the dollars?

 

The cash stream of your financing need can be short or long, heavy or light.  Don’t cut yourself short by not facing reality.  Bankers can get grumpy when dollars borrowed are not paid back within terms.

 

What specific information does the banker need?

 

The banker’s “blueprint” for satisfying your financing needs is financial data that confirms your company’s financial history while conservatively projecting its financial future.  The data is made up of items such as:

                Asset Appraisal                                      Aging of Accounts Receivables & Payables

                Financial Statements                           A Business Plan

                Cash Flow Projection                          Organizational Flow Charts

                Key People’s Résumés                        Supplier and Customer Lists

 

 

How do you present the package?

 

An organized, well thought out and thorough presentation is half the battle.  Remember bankers are conservative-analytical thinkers who must present your case to a loan committee for final approval.  Making their job easier motivates them to pursue more diligently.  Why not concentrate on taking all the reasons to say “no” away?  Smooth out the weak areas of the package by concentrating on your company’s strengths.  A banker’s main objective is to prove that your company can afford to pay the dollars back.  Help them prove that by painting a realistically positive future through numbers, pictures and pertinent discussions.

 

How do you choose the right banker?

 

Personalities, philosophies and industry preferences dominate in making the right choice.  Most banks have industry preferences as well as industry “taboo” lists.  Select a bank that finds your particular industry attractive to lend to while maintaining an aggressive overall lending philosophy.  Of course, aggressiveness changes with the times, so stay current.   The key, however, is the people you deal with.  Being able to effect a close working relationship is imperative.  Sensing that such a relationship will not occur signals future problems.

 

In short, one of your firm’s most important alleys is your banker.  Why not allow your banker to serve you properly by understanding and providing the information that creates the financing package you desire.  Doing so will enhance your firm’s success.

 

Written By: Nicholas L. Gregory, CEBA, CIC

       President and Managing Partner of The Financial Engineering Institute, LLC