Dealing With Your Banker

Ted Frost, in his book "Where Have All the Woolly Mammoths Gone?" put it this way -- "I've often thought if I could collect all the nation's bankers in a big gunny sack out in the middle of the ocean that I would jump overboard with the sack and sacrifice myself just to rid the world of them."

If this sounds extreme to you, talk to someone who has tried to get a loan and been turned down several times. However, for better or worse, bankers are here and people who need loans must deal with them. Fortunately, there are better ways than the method referred to above! A well prepared business plan can increase your chances for a loan and as in any negotiating process, understanding where the other party is coming from is a big first step in developing a mutually beneficial alliance. It also goes a long way in relieving the stress associated with the typical adversarial relationship between lender and borrower. Why do some businesses get loans while others don't? Getting the loan you want can be a matter of salesmanship and the better your business plan is prepared, the more likely it will be that you are successful. Remember, you cannot assume that the bankers know anything about your business, it is your job to educate them.

First, let's look at borrowing from the bankers' perspective. As a lender, the bank is giving the borrower someone else's money. Whether it's Little Johnnie's birthday money from Grandma, Grandma's social security check, or Donald Trump's millions, banks loan out money which is not their own. As such, they have a responsibility to loan that money according to certain standards. This is called a fiduciary responsibility.

 
Bankers are trained to require two sources of repayment on a loan. The first source of repayment is, for short term borrowing, cash flow, and for long term borrowing, earnings. This first source should be backed up by some form of collateral, such as accounts receivable, inventory, or a mortgage on fixed assets. Thus, if source A ever fails or dries up, the banker still has a fall back position in source B.

Bankers frequently require a personal guarantee from the owner of the business, particularly in small companies or start up situations. Why do they want three sources of repayment? Because they want your psychological commitment to the success of the business. The banker doesn't want to take a chance on a loan if you are personally hesitant to do so... it just doesn't create confidence!
 

Your banker evaluates your loan request using the "five C's of credit" which are:
 

To these five critical factors, we at Rightway suggest a sixth "C":  CONFIDENCE! When you approach your banker with confidence and enthusiasm, and treat them as a valued member of your corporate team, your chances for success are enhanced a hundredfold.  You will be amazed at the potential for a favorable and enthusiastic response from your bank when you use this approach, and will be joining the top 1% of banking customers who ever do such a thing.

Rightway's principles have a broad range of experience in preparing custom business plans.  We can create a completely custom plan for your funding request,  just ask us how.