Making money is hard work, and
raising the capital to get a business going can be equally challenging, unless you know how to package a loan application. The path to
lending is strewn with stories of people
with right intentions and none of the
know-how of how to sell themselves on
paper.
Organizing data, paying attention to
details and demonstrating that you, the
borrower, understand your business
always appeals to a banker, says Patrick
Ramsier, managing director of commercial
lending at ViewPoint Bank. It’s all in the
packaging, he says.
“It’s not a case of form over substance,”
says Ramsier. “It’s a matter of being
thoughtful, of giving the lender all the information needed to effectively assess the
risk he or she plans to take on.”
Smart Business spoke with Ramsier
about the do’s and don’ts of commercial
lending and tips he could provide a
prospective borrower to successfully
obtain a loan.
The availability of financing is strong. How
can this feature of the marketplace influence
a borrower’s mindset?
It all depends on how sophisticated the
borrower is. If he reads many business and
trade publications, he might get the view
that there is a lot of capital floating around
and that obtaining financing should be
easy. But he shouldn’t think this way.
A shrewd borrower will always want the
best deal, and he will shop around for that.
In doing so, he will go into a banker’s office
prepared, having in hand a set of documents over and beyond a loan application
— one that convinces the banker of his
business acumen and creditworthiness.
What we look for is a detailed and organized presentation that makes our review
easier.
How can a borrower demonstrate to the
lender that he or she represents a good risk?
We’re often looking at more than the
financial numbers. We’re also looking for subjective information, such as the history of the firm; rsums of the firm’s top
officials and a summary of their industry
experience; an overview of their long-and short-range marketing goals or a
description of the demographics they are
targeting. Such pieces of information
help fill in the picture and help us to see
whether the borrower makes a good risk.
In effect, the process we undertake is
not much different than if you were to
lend money yourself. Surely you would
want to see some numbers as well as to
learn the background of the person
you’re lending to.
For example, a borrower could request
money to cover a payroll. But if he does
not fully explain the circumstances that
create a shortfall in cash flow, I’m not
comfortable with that presentation.
Instead, if he was to explain in writing
that he’s experiencing a timing issue
with receivables from his biggest national customers — that these clients, be
they the U.S. government, FedEx or
whomever, are paying every 90 days, for
example — then I’ll better understand
the conditions he’s operating under. I’ll
eventually come to learn that he has a
solid business model, and that he could
be a good risk.
Do borrowers sometimes get overconfident
that — having successfully secured loans in
the past — laying out the numbers every
time is not necessary?
The bottom line is that the strength of a
business is affected by its borrowing
costs. Any time you can lower your borrowing costs, it’s going to be in your benefit. To do that, you need to be as prepared
as possible, and that will help you get the
best deal possible.
Sure, banking is a relationship business. But that fact should not make you
overconfident that you’ll both get a
loan and get it at the best price. Always
be prepared to present the best possible picture of yourself and your business. For example, if your company has
done better than expected and you
show that you understand your business, say so confidently.
Banks want your business, but you
want a loan that works for you. Your
best chance at the best deal is to tell
the banker the whole story.
How often do you see a poorly thought-out
loan application?
We see it about 25 percent of the time.
I can’t say enough about how a borrower is affected by sound loan package. It
takes a lot of guesswork out of the
equation when we see an application
with relevant supporting documents. I
don’t mean one that just looks pretty; it
has to be something that speaks to the
management of the business. It shows
me that the borrower knows what he or
she is doing and is determined to both
grow the business and to pay back the
debt.
PATRICK RAMSIER is managing director of commercial lending at ViewPoint Bank. Reach him at (972) 801-5832 or
[email protected].