Business owners that provide their bank with a seat at the table as key company decisions are being made often realize significant benefits from the closer working relationship.
“When you allow your banker to be part of the conversation and to have access to other key advisers such as your accountant, your bookkeeper and your attorney, you can cut out a lot of the time it takes to get things moving,” says Sean M. Ulik, vice president and business development officer at Consumers National Bank.
The process of securing a loan to purchase new equipment, expand your business or launch a new real estate development takes time. A number of things need to happen before the bank can provide the funds you’ve requested.
“Your banker is the primary conduit between your business and the people at the bank who will ultimately make the decision on whether to approve your loan,” Ulik says. “If you can build a strong partnership with that person or others you work with at your bank, it can only help as your company pursues its goals.”
Smart Business spoke with Ulik about how building a stronger relationship with your bank can help your business secure a loan.
What are some common mistakes companies make when seeking a loan?
One common mistake is to not have a clear understanding of your needs relative to the bank’s ability to support those needs, which can be the result of previous banking relationships that did not have a high level of engagement between the two parties. It’s through these conversations that you learn how different financing options work, discerning which ones make the most sense for your business versus those that are less of a fit for your needs.
For instance, when a company secures a line of credit, it’s meant to be used for working capital and should be turned over (paid down) consistently. If you’re only paying the interest on the debt and using it more as a revolving loan than a line of credit, you may find it difficult to secure additional financing in the future. It’s that type of scenario that your bank can help you avoid.
Another mistake companies often make is an unwillingness to share sensitive information with their bank. Your banker is in the best position to be an advocate for your company and help you secure the funds you need. If you trust your bank, you shouldn’t have a problem sharing data that can only help in the effort to secure your loan.
If you have had challenges securing a loan in the past due to problems in your company, but have since rectified those concerns, your banker can back you up and explain why your company is now worthy of the funding support.
What matters most to banks in today’s economy?
The 5 C’s of Credit that lenders considered when making loan decisions had always been: character, capacity, capital, collateral and conditions. That has changed a bit in the last eight years. It’s now: cash flow, cash flow, cash flow, collateral and credit. Character is still a consideration, but cash flow really drives your worthiness for a loan. That’s not just for your business, but on the personal side as well since they often can affect each other. This is especially true if you’re someone who owns 100 percent of your business.
How should you prepare for a meeting with your bank?
Make sure you have a solid plan in place to discuss with your bank. Be familiar with the project you’re working on and how the funding you’re seeking will be used.
If this is the first time you’ve worked with this bank, it’s always good to get at least three years of tax returns for the business and for any guarantor or owner that has at least a 20 percent stake in the company, along with personal financial statements.
You should also have the most recent profit-and-loss statement and if you’re a larger company, have quarterly statements that reflect how your company is performing so far this year.
If you’re a smaller company, in addition to your bank, you should take advantage of small business development centers. These are often staffed by former bankers who can provide expertise free of charge and can help you put together a solid package.
Insights Banking & Finance is brought to you by Consumers National Bank
