Willie Sutton robbed banks from the late 1920’s until his arrest in 1952. When asked by reporter Mitch Ohnstad why he robbed banks, Sutton answered simply by saying, “Because that’s where the money is.”
Business owners rarely have enough capital to self-finance many aspects of their business. Launching new initiatives, expanding on-going operations, and smoothing out seasonal swings in cash flow are all reasons companies rely on outside financing. The most common source of that financing is their local bank.
In our current economic climate, business owners find securing and maintaining an adequate source of business financing particularly difficult. They face many challenges when approaching bankers including a limited knowledge of business financials, a lack of resources to employ a dedicated financial manager, and a tight credit market. As a result, a meeting with the banker is often compared with a visit to the dentist; filled with thoughts of discomfort and unbearable pain.
But it doesn’t have to be that way. With a little preparation and a good story, your banker will be one of the trusted advisors in your inner circle. Bankers understand small business funding needs and are ready to provide financing to those who qualify. Of the criteria needed to qualify, the most important is the ability to repay the loan. If you can show the banker that you can make the payments, the banker will lend you the money.
We asked Tom Sanvick, vice president of commercial banking at F&M Bank in Vadnais Heights and Lino Lakes for a few tips to help small business owners prepare for a meeting with the banker. Tom offered seven tips to improve your chances of securing needed funds:
- Be Prepared. Your financial reports are the dashboard the banker uses to evaluate the financial performance of your company. Every banker will ask for the company’s balance sheet and profit and loss statement (or P&L) for the current year as well as the past three years and for a personal financial statement and three years of personal tax returns for the company owners.
- Be Prepared. The language of business is numbers and bankers are very comfortable speaking it. Bankers consider your knowledge of your financials and ability to speak the language an important measure of your skill as a manager. The banker is betting on that skill when deciding to loan money to you, so it’s best to understand some of the basics of how your business activities translate to the financial statements.
- Be Prepared. Before you go into the meeting, know why you are borrowing the money. You should have a specific purpose and the ability to explain how achieving that purpose will enable you to repay the loan. It’s always easier for a bank to approve a specific request for funding.
- Be Prepared (do you see a pattern here?). Just like buying a home requires a down payment, bankers expect that the business will supply some of the needed financing, too. This can be from an initial funding of the business by the owner, use of some of the company’s profits, or both.
- Be honest. If all of the cards are on the table from the beginning, there will be a level of trust built up, even if the truth isn’t “great” at the specific time you’re talking to your banker. Bankers talk with many business owners everyday, from very successful owners to some who are struggling. They are very good at seeing through attempts to “put lipstick on a pig” and if you can’t be trusted, you won’t receive any money.
- Offer security. Unless the business has significant equity in its own assets, be prepared to secure the loan with business or personal assets and a personal guaranty. The most common form of security is a blanket UCC security agreement that takes an interest in all of the business assets now owned or acquired in the future.
- Last, but not least; communicate with your banker, in good times and bad. A change in communication causes concern for a banker, and lessens the chance that a good solution can be figured out, if the times are not that good. Bankers understand that businesses go through cycles and sometimes things aren’t going as well as you’d like. As a trusted advisor, your banker will use his experience to offer suggestions for getting through the tough times. When your banker is kept well informed, he is more likely to work with you if you can’t make a scheduled payment.
So there you have it. Be prepared. Speak the language. Know your business. Communicate openly in good times as well as when things are not so good. By following Tom Sanvick’s seven tips, your chances of securing and keeping needed financing sources increase dramatically.
Tom is happy to discuss small business banking in general or work with you to set up needed funding. He can be reached at (651)429-8000 or at tsanvick@fmbankia.com.
© Copyright 2011. Alden Pearson, P.A. All rights reserved.
