Work With Your Lender to Make Business Work

If you’re like many other business owners, you look forward to seeing your banker about as much as you do an IRS auditor.

That’s too bad, because bank financing is not just the best and the cheapest outside capital you can get, it’s probably the only capital you can get. And without it, your business may stagnate or, worse, wither and dies.

In plain English, you need the help of a good banker to grow and prosper. The good news is that it lies entirely within your power to build and maintain a relationship with a lender that will prove its value to both of you in good times and bad.

What’s the key?

You start by understanding that lenders want to make a profit and that they hope to do it comfortably. They don’t like big risks. Indeed, they can’t take on big risks because the money they lend you is their depositors’ money, not their own, and federal and state laws severely limit what they can do with it.

That aside, bankers have a great deal of money to lend these days, and they eagerly lend it to people who play by the rules and offer them risks they understand--”understand” being the important word here and the key to establishing and maintaining a solid relationship with your banker.

“Your banker’s job is to find a way to lend you the money you need,” said Daniel Feiman, whose Woodland Hills firm, Diversified Solutions & Finance, offers financial and strategic management consulting services to small and mid-size companies. “This means you’ve got to give your lender the tools to say yes.”

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Bankers, Feiman said, base their decisions on what he calls the “seven Cs” of credit, which are your:

* cash flow

* credit-worthiness

* collateral

* capacity to repay the loan

* character

* common sense

* compassion of your banker.

You establish the first four, Feiman said, by sharing with your lender the numbers that describe your business: your financial statements, tax returns, business plan and current and long-term revenue projections.

You establish your character and common sense through regular, direct contact with your loan officer and with at least one of his or her superiors.

You elicit the last, your banker’s compassion, by making him or her your ally in your enterprise.

“There’s a very pragmatic reason for this,” Feiman said. “Your loan officer takes your application to a loan committee whose members never see you, so your loan officer’s got to be passionately positive about what you’re trying to do.”

All of this begins with choosing the right banker, Feiman said. You should do some due-diligence investigation of the bankers vying for your business, chiefly by checking among your professional advisors and peers in the business community. In addition, look at the bankers’ specialties along with those of the banks they work for, making sure that their strengths complement your needs. Identify your lender’s decision-makers and cultivate those people too.

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Above all, once you make your choice, educate your bankers--meaning your loan officer and the decision-makers above him or her--about your business, Feiman said, and keep them informed about your progress and the challenges you face. At the least this means sharing your financial statements on a quarterly, maybe even a monthly, basis. It also means regularly schmoozing with your lender over breakfast or lunch, and perhaps scheduling a formal presentation once a year to go over your recent experience and your plans for the future.

“The relationship between the business owner and the lender has to be mutual,” Feiman said. “Too often, people who are looking for money are intimidated by people who have it, and they think that because they need money they must beg and plead and bow and scrape.

“But bankers get paid to lend money; they have to lend money to keep the doors open. Your job as the business owner is to sift through the banks and bankers vying for your business to find those that offer the services and products you need.”

Don’t hide any credit problems in your past, Feiman advised, and don’t gloss over the difficulties you see in your future. Your bankers want to have a hand in making your dreams come true--and you put them in a position to help by making sure that they know as much as you do about what it will take to do so.

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Next: How a Monrovia business capitalized on its banking relationship.

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Juan Hovey can be reached at (805) 492-7909 or at [email protected].