Get the Bank to Come to You
As an entrepreneur, a large part of what you are able to do with your company, in your industry and with your life boils down to one thing: money.
Though you’ve been able to build a successful company, you know that to get bigger, be better and reach your business goals, you need cash. So, in droves, business owners flock to financial institutions hoping, promising and sometimes pleading for the capital to reach the next level.
Yet there are ways to avoid this draining and demeaning process— approaches that allow you to change roles from hunter to prey. You have the power to make the bank come to you. And the reason is simple: Banks “buy” money from depositors and “sell” money to borrowers at a higher rate. If a bank doesn’t loan enough money, it will never be profitable.
According to Myles Sherman, EO Houston member and WEO Past President, banks need you as much as you need them. “Two years ago, I was asked to be one of the founding members and sit on the Board of Directors of The Bank of Houston,” says Sherman. “I thought it would be a great investment and an even better opportunity to learn how the banking business works from the other side. I have borrowed and paid back more than US$200 million, but I always got the feeling that I needed the banks more than they needed me! In my first board meeting, the most shocking thing happened: I learned that bankers actually want to make loans to entrepreneurs like us.”
Ultimately, the power to be approved for a loan is in your hands. Insiders say there are three basic strategies that will help ensure your success: Plan ahead, be where banks are looking and have someone refer you.
Julia Langkraehr, EO London member and Co-Founder/Managing Director of Retail Profile Europe Ltd, says that one of the most crucial steps when seeking a loan is to develop a relationship with a financial institution before you need the money. She learned this firsthand when, as an American, she was seeking funding for a venture that was a new concept in the United Kingdom.
“Get to know the bank early by working with a customer manager long before you need the loan,” says Langkraehr. “If you supply the bank with a monthly management account and annual audit reports, they will know you and your company and feel more comfortable approving the loan when you need it.” This relationship will give you the opportunity to discuss future financial needs before they become pressing and even establish your credit through a small loan, like a line of credit.
Ultimately bankers want to do business with someone they know and trusts, but they must also believe in your business model. It is up to you to educate the lender on your personal history by providing a resume. This document should include your personal financial statement, updated on 31 December and 30 June each year. Even if you won’t be personally guaranteeing a loan, it is important for a banker to know that you have a net worth. Then, in a short and concise summary, you should tell your banker exactly what your current and future needs are. If the bank has an interest after the initial meeting, there will be ample time for your loan officer to gather information from you in order to present your information to a loan committee on your behalf.
Be Where Banks Look
You’ve heard the old adage that good things happen to those who are at the right place at the right time. While entrepreneurs know that destiny is often what you make it, there is some truth to the “locale” approach. If you are visible when banks are on the hunt for new clients, says Sherman, you have a greater chance of being approved.
For starters, join industry trade groups or a local Chamber of Commerce because banks obtain lists of their members to establish prospect lists. Or sponsor events that a local bank is also sponsoring to show that you and the financial institution have similar interests. By supporting banking industry-related events or seminars, you can build new relationships and put your company out there to be seen.
Have Someone Recommend You
One of the reasons so many entrepreneurs join EO is to connect with other business owners from around the world. You know that you can learn from the lessons or others, but you also know that everyone prefers to do business with people they know. The world of banking is no different. That’s why having someone recommend you to the folks at the bank will work in your favor, says Jorge Morgan, a Panama member and a President & CEO of MMG Bank Corporation.
Start by asking your accountant, your attorney, a friend and even a Forum member to make a referral on your behalf to a banker they know or use. Many say this is the best way to get a bank to come to you. Referrals make this a real opportunity in the mind of a banker, as they are searching for good, reputable clients just like you.
It is also important to find the right financial institution for you and your company, considering that you want the relationship to be a long term one. Ask around to find out what banks your peers use and how they established their relationships. Find out what the different institutions bring to the table by comparing rates, terms and how easy each bank is to work with. This final component, the “user friendly” factor, is important because you probably don’t have time to provide new financial information every week. Sherman suggests asking bankers up front what type of reporting data they will need and how often they will need it.
According to Sherman, timing can also play a factor in whether you get what you need from a financial institution. As with every business, certain times of the year are slower than others. For banks, the summer is particularly a slow season. This may also be a difficult time for loan officers to meet their loan quotas, and they will be just as anxious to meet their sales goals as you are to acquire a loan. What’s more, if you are new to the lending game and need extra attention, interviewing bankers in the slow season will benefit your needs. During this slow time, bankers can spend more time with you, meaning less competition to distract them away from your business.
Banks provide an inexpensive source of growth capital, but they usually provide such financial support on a short-term basis. Make sure your banker understands your business and will be there over the long-term, in the good and bad times. This will require that you to be supportive of your banker, making him or her part of your business by visiting often. Treat your loan officer as though he or she is on your board of directors. Don’t show up with constant surprises, ask for opinions and guidance and provide information as requested no matter how trivial or insignificant it may seem to you. In the end, you will receive the growth capital you need on favorable terms and secure a business advisor who can make a difference in the success of your business.