It shouldn’t be so difficult.
We have commercial banks, many flush with liquidity and over-concentrated in commercial real estate, eagerly seeking lending opportunities with businesses. We also have business owners, survivors of a harsh recession, seeking new banking relationships. Why then are bankers complaining of low loan volume and business owners lamenting that it’s hard to get the loan they want? Whether you’re a banker looking to increase your book of business, or a company seeking a new bank relationship, it’s time to focus on the fundamentals.
The Business Owner
Pick your bank carefully. There’s more to the relationship than a low interest rate. Banks differ in their product mixes and capabilities. For example, if you conduct significant amounts of international business, you’ll want a bank that can provide services such as foreign exchange and trade letters of credit. Banks also differ in their approaches to approving credit. Some lend more heavily on collateral/assets, while others focus more on cash flow. Most of the time, it’s best not to be the smallest or biggest fish in your bank’s pond. With decreased interest income, banks need to focus on efficiencies and risk management. Being too small or too large may raise your profile, making it more difficult if you hit a bump or need a change in your loan structure. Finally, unless you really, really know your bank, meet the decision-makers and ask for references. All banks sell “relationships and service,” but only with firsthand knowledge can you differentiate between institutions.
Speak banker talk. Bankers like diversification. Although all lenders are not the same, most concentrate on three general repayment sources when underwriting a loan request: cash flow, collateral and sponsorship/management. A good banker will stress the risks as they relate to all three. Ideally, your company is strong across the board, but often one area will be weaker. Most commonly, cash flow has been weaker the last few years due to economy-driven revenue declines. If this is the case, explain it to your lender, realizing that collateral or a guarantor will likely increase in its importance until you have demonstrated consistent earnings. As an aside, the Small Business Administration can often help when a little more support is needed to obtain a loan.
Be organized. It never hurts to prepare a presentation explaining the opportunity and risks of your business. Describe how you survived the last few years and where you want to take your company. Nothing builds more confidence in a banker than a well-prepared prospect.
The Banker
Know your prospect. Don’t just put on your credit hat and figure out if you can get the transaction approved, but rather find the “hot buttons.” What do they think their business is worth? Is the next generation engaged and competent? Do they have the right advisors? Taking the conversation from transactional to strategic will not only impress your prospect, but you will gain insight into their thinking and objectives. If it doesn’t feel right from a strategic fit, it’s probably not a good opportunity for either party.
Look behind the numbers. Many businesses have struggled over the past few years. Some owners had to find innovative ways to fund cash flow gaps. Be empathetic. If you’re talking to an owner now, he or she is a survivor. Be creative. Maybe the bank will need some additional collateral or a credit enhancement, but also discuss what will need to happen in the future to get you to the loan structure you both want. Your prospect is an entrepreneur who respects creative and adaptive thinking.
Be direct. Quickly and directly discuss any questions, issues or concerns you may have with the contemplated transaction. Realistically communicate what needs to happen for a relationship to begin. We are all busy, and being direct is a sign of confidence and respect.
Regardless of which side you are on, banker or business owner, in today’s challenging economy nothing beats spending time to get to know one another, understanding the nuances of each other’s business, focusing more on the long term, and communicating clearly and directly. Choosing the right relationship, with the right banker will always outlast a good transaction.n
Rob Nentwig is a senior vice president and group leader in commercial banking at Boston Private Bank & Trust.
