RULES FOR DEALING WITH BANKS
Now that you are prepared with a business plan/loan request, here are some rules to improve your chances of getting your loan.
1. Understand what kind of loan you need.
The bank provides commercial loans for short tem and long term needs. Short-term loans are structured as lines of credit and are usually used to finance accounts receivable and inventory. Long-term needs are financed with term loans. This can include financing the purchase of equipment, real estate or the purchase of a company.
2. Pick a banker not a bank.
Ignore all the advertising and the hype. Pick a banker the same way you would pick any professional service provider. Network with friends and business associates and find out who they like and recommend.
3. Go in recommended.
A recommendation from a person who works with the bank can be invaluable. Some sources for introductions and recommendations are existing customers, bank board members, accountants and attorneys.
4. Go to the person who will handle your loan.
The bias of the bank is to look skeptically at all loan requests. The loan will be approved by a group of bankers you may not have met. You need a loan officer who understands your business and will champion your cause.
5. Make sure you have answered these basic questions.
· How much money do you need? Don’t ask how much the bank is willing to lend.
· Why is the money to be used for? Be specific.
· Why is this loan good for you business? If you are not adding more revenues and profits, why borrow?
· When and how will you repay this loan? Your projected financial statements should show this. And…what if your plans don’t work out? Do you have a backup strategy?
6. Identify the risks.
Be open and honest about the risks that you see and explain how you manage these risks. Do not attempt to hide bad news. Instead, explain the problems you have and describe your plans to resolve these problems.
Hopefully with the preparation and focus on profits and cash flow, your loan will be approved. But if the answer is no, take the time to discuss the request with the loan officer and learn why the bank declined the loan. This discussion should focus on the specifics of the forecast and the risks the bank perceives. Use this information to modify your business plan/loan request and start with another bank and banker.