Advice You Can Bank On

Need money? Alas, money is hard to come by sometimes. If we don’t count the more extreme sources of funding (loan sharks, counterfeiting, credit cards, etc.), there are basically three places to which a small businessman can turn: banks, leasing companies, or friends and relatives.

Banks, I must point out, are often your best source of funds. They are the only ones who don’t want anything from you besides their money back (with a bit of interest). To that end, banks sometimes go overboard to assure themselves that you will repay. Paula Fargo of Curry Copy Center in Baltimore, Maryland recently wrote several worthwhile articles about the pitfalls she experienced when dealing with leasing companies and with banks. Her latest article bemoans the one-sided nature of some banking relationships.

It needn’t be so, however. Here are a few ideas to help level the playing field next time you sign on the dotted line with your banker.

The preparation

Before you approach a bank, some preparation is necessary. First, keep accurate and current financial statements. Every reader of this magazine knows how important it is to do so. You must know your own financial position before you can share it with a bank.

Properly prepared statements tell a banker that you understand finances. This makes them more confident in you. A confident banker is going to be less concerned about adding extra covenants and guarantees to your loan.

Next, tighten up those collections. Bankers pay attention to your accounts receivable. After all, the money you collect is the money you’ll be using to repay your loan. If you have a lot of customers over 90 days, the bank is going to question your ability to repay.

Be sure to use your accountant to your best advantage. Have him prepare your financial statements, or review them if you prepare them yourself. He should know what banks want to see. Ask him to recommend a bank that would be a good fit for you. If he has a relationship with a loan officer, have him put in a good word for you.

Get to know a banker, any banker, even if they aren’t with a bank you intend to borrow from. From the neighborhood, your church, or your Lions Club, make friends with someone who is in the business and willing to serve as a sounding board. Ask them what is negotiable and what is written in stone. Ask for suggestions to improve your banking relationship. An educated third party such as this can be very helpful.

Don’t hesitate to negotiate

Now it’s time to approach the bank. Often, locally owned community banks have more flexibility. Seek out a loan officer who is at least a vice-president. New hires fresh out of college lack the self-confidence to negotiate, whereas experienced officers have the authority and the knowledge to get creative. A great loan officer will even offer suggestions and alternatives once you explain your objectives and concerns.

Did you notice I used the word “negotiate” here? You don’t hesitate to negotiate prices with your paper vendor, and you might also negotiate payment terms, prompt pay discounts, and free freight. There’s nothing to stop you from negotiating more favorable terms from your bank. If your loan officer is rigid and inflexible, further shopping is in order.

When terms are agreed upon, it’s time to sign. Insist that your banker furnish copies of all documents in advance of the signing. Read the fine print yourself, then have a lawyer do so.

Question anything you don’t understand. Don’t feel stupid – you may be surprised to find that your banker can’t answer some of your questions about the contract. If anything is unacceptable to you, scratch it out. At the very least make the banker explain why the offending clause needs to stand. If the banker refuses to alter the contract in any way, speak to his superior. If that doesn’t work, consider halting the signing. Let them know their intransigence is a deal-killer.

Be reasonable, but stand your ground. Always remember that at the end of the day banks only make money by lending you money, and the loan officer is paid only for the loans he successfully makes.

You may need their money, but they also need yours!