The cheapest money is not always the best money when it comes to securing a loan for your business.
If you and your bank aren’t on the same page with regard to the goals for your company, it could diminish the benefits of a more affordable loan and lead to trouble reaching those objectives.
“Your bank needs to be engaged in your business and understand your business’s operating cycle,” says Drucilla Garcia-Richardson, senior vice president in the commercial banking division at Manufacturers Bank. “If an effort is made to understand both your business and your industry, that’s an optimal situation.”
Garcia-Richardson says most banks fit this mold and are eager to help entrepreneurs build their business and do their part to stimulate the economy. They just want to see the same engagement from the entrepreneur.
“You need to know your business,” Garcia-Richardson says. “Understand where you fit in your industry and where you want to go. When you can have those candid discussions, it makes for a great banking relationship.”
Smart Business spoke with Garcia-Richardson about the keys to securing a loan for your business.
What’s the key to finding the right bank for your needs?
It’s a two-way street. If you find that you’re getting a lot of pushback on the ideas for your company, you should talk to another bank. Talk to two or three so you understand the mission of each one. It could be a situation where the bank is so inwardly focused that it is not able to support you.
If you’ve had a long relationship with a lender, that should be a good thing and the lender should be motivated to continue to support you and help you grow.
But if you find that your banker doesn’t understand what you’re saying or isn’t engaged, you need to pursue alternatives.
You want a bank that has a focus on you. You don’t want a consumer lender that doesn’t have expertise in talking to businesses. You need to feel that the person you are talking to is engaged in what you’re looking to do and wants to help you do it.
How can rejection ultimately lead to the desired outcome?
You could be a company that is profitable, adequately capitalized and is experiencing some sales growth. Maybe you want to buy another company that is double or triple your size.
If the bank says no to your request, you should ask why.
Do you need to put more money in? Is this business you want to acquire not synergistic or strategic in terms of your business plan?
Your bank has a responsibility to be candid and to be able to do a deep dive in terms of explaining the reasons for its decision. If it can’t, that’s not a good bank.
How can you prepare for a meeting with your bank?
Have current financial statements. Have your annual tax returns and a CPA-compiled financial statement for the most current fiscal year, as well as any interim financial statements. Be able to speak to your company’s primary assets. If you have receivables, have your accounts receivable aging. If you’re an inventory intensive business, have a breakdown of your inventory.
Have reports on your accounts payable, what your short-term liabilities are and whether you are current making payments. It’s also important to have your current personal financial information. You may come to the bank and say you want the money because your business is growing.
You should be able to speak to how much you think you’re going to grow. Is it a projection or just an idea that may or may not happen? Maybe the probability of it happening is high. You need to be able to have that conversation.
In some situations, you may have a $5 million line of credit, want to get that line increased to $6 million and find that your bank is ready to increase it to $8 million or $9 million. When a bank understands what you want, it is more likely to do what it takes to help you. ●
Insights Banking & Finance is brought to you by Manufacturers Bank
