Getting A Business Loan -- Part Two

Last week, in Part One of this two-part series, I asked if you knew how a banker makes a decision to loan (or not loan) you money for your business. And if your answer was no, I encouraged you to do your homework before you make such a request.

Then I pointed out how qualifying a prospective bank for a loan is like qualifying a prospective customer in the sales process. Below are the six qualifying steps, which were identified in Part One.

• Who is the decision maker?


• What do they need?


• How do they want it delivered?


• What motivates them?


• How motivated are they?


• What do you have to do to make the sale?

Now let’s finish this project with my thoughts on the last three qualifying steps.

What motivates them?
First, let’s establish that all banks need to make loans. It’s one of the prime ways they earn profits to keep their doors open and provide value for their shareholders. But all banks don't like the same kinds of loans.

Some banks are set up to make working capital loans, and some aren’t. Some banks take pride in really helping small businesses, and some just talk about it in their advertising, but don't actually deliver. Most banks make real estate loans, but each bank has its own profile of what they are interested in -- residential, investment property, business property, etc. -- which can change every quarter, as their portfolio evolves.

During your initial conversation, the things your banker says about your proposal will tip you off about their attitude about your type of loan. Here's what that might sound like:

"We have a lot of computer upgrade loans in our portfolio." Or, "We don't make a lot of used car floor plan loans. Not saying we won't make this one, but we don't do too many."

If you don't get some indication of the level of interest, it's okay to ask. "Susan, does your bank make asset based loans where accounts receivable and inventory are the collateral?"

What motivates a bank to loan money to your business today may be different next quarter, or next year. So if you wrote a bank off last year (or if they blew you off), give them another chance. Things change, and so do banks.

How motivated are they?
Sometimes you catch a bank when they need to make loans. A deal that couldn't get through the front door of Bank A this morning might be received with a red carpet at Bank B this afternoon. I'm not talking about a bad deal. No bank is going to work a deal that has fatal flaws. Rather, a bankable deal that might fit the loan profile of one bank this time around, but not another one.

Banks will fight for loans, but they will kill for deposits. Checking account deposits are virtually free money, a portion of which banks use to make loans. They like personal checking accounts, but they LOVE business operating accounts.

A bank’s motivation will increase if you have daily deposits of any size, and are willing to move your operating account. Likewise, the bank that currently has your deposit business will be more motivated to make your loan if they fear you will move your accounts.

If you've been in business for a while, you may have a deposit history that is valuable to a bank. Ask your banker what your business’ compensating balance is. This is important information to acquire, because the bank down the street will ask for it, and your current bank will know you know how valuable your deposits are. Talk about efficient negotiating leverage: One question and one answer that motivates two banks. That's right; you could have leverage due to your deposit history. Use it. But you've got to do your homework first.

What do I have to do to get the loan?
You might have to provide your banker with a demonstration of the new equipment the loan is for, take him or her to see the building you want to buy, or the land next to your business that you want buy for your next expansion.

Show-and-tell is always a good move, especially if it's outside of the bank (bankers like field trips). Show them how the object of your loan request will help you grow your business, profits, and deposits.

Another thing you should realize is that some things you may want your banker to do are just not possible. There are internal, state, and federal regulations that every banker must deal with. Some regs are internal: "No loan officer at First Midstate Bank will make an unsecured loan of more than $10,000."

There may be a state or federal statute that creates extra hoops you and your banker will have to jump through. If you can anticipate this, or are prepared to be flexible when you learn about the inconvenience, you will be a better loan candidate.

Find out if what you want conflicts with any of these rules, regulations, and "hoops.” If it does, don't waste anyone’s time, and a future relationship, by asking for something that isn't going to happen.

If you know that the regs and "hoops" won't keep you from getting the loan, but certain things must be done to satisfy them, help your banker out -- be part of the solution, not part of the problem.

Most bankers are looking for ways to make a loan, and one of those ways is help from you. The best way for you to help your banker help you is to do your homework.

Regardless of whether you are borrowing $5000 for a computer system, or $5 million to buy out a competitor, NEVER take a loan proposal to a banker without knowing what's going on inside those walnut paneled walls while you are waiting for an answer.

Write this on a rock…Bankers like smart borrowers. Smart borrowers make a banker's life easier. If you want to help your banker help you, do your homework before you ask for a loan.

If you missed last week's article, you can find it in the Articles section of our website.