Tag Archive for 'bank loan'

6 steps that can make a banker your champion

At some point in your career as a business owner, you’ll need a business loan; probably from a bank, but perhaps from a non-traditional source, like a crowdfunding lending platform. Allow me to help maximize your chances of getting the loan by introducing you to the fundamental underwriting elements any lender will use when considering your loan proposal. Meet the “Six Cs Of Credit.”

1. Character – What’s the character of the borrower? To a community bank, character still means a lot. For larger banks, digital credit scoring dominates the approval process and this “C” is less compelling as an analog factor. Regardless, the appraisal of your character will always impact the loan approval process. Guard it well.

2. Capacity – What’s the ability (read: cash flow) of the company to repay the loan? A banker once told me if he could see only one loan proposal document he would ask for the projection of cash flows, because that’s where he could see if there would be enough cash to repay the loan. Remember, profit is an accounting concept. Bank payments are made with cash, not concepts.

3. Capital - Is the loan amount justified by the financial strength of the borrower? For example, sales volume, profitability, CASH FLOW, retained earnings, the underlying value of the asset being purchased, etc. If you’re unsure about your capital appraisal, take your banker to lunch and talk about it.

4. Collateral - This is the bank’s fall-back position. Collateral is whatever a banker can get you to pledge as their Plan B in case you default. But remember: Once you give a banker collateral, getting a partial released prior to payoff is like getting a she-bear to hand over her cub.

5. Coverage - Bankers are prepared to take certain risks, and the interest rate and terms are based on the level of risk with which they feel comfortable. When possible, banks look for opportunities to shed or minimize that risk, like various kinds of insurance products. Be prepared.

6. Conditions - Bankers ask themselves, “Does it work? Do we like this deal?” You can improve your chances by explaining how you’ll use the money, how it will help you grow your business, create more jobs, strengthen your market position, make more money, etc. Practice your pitch on someone before you go “live” with your banker(s). If a banker doesn’t understand your deal and how you’re going to make it work, you won’t get the loan.

The title of the shortest book in the world is “Loan Officer Courage.” Help a bank become your champion by showing you understand and support their underwriting process.

Write this on a rock … Improve your loan chances by understanding the Six Cs of Credit.

Speak “banker” as a second language

Once a storm caused two ships to sink in the same area and all on board were lost at sea, save one from each ship, who survived only because they swam to a nearby island.

Fortunately, the two men hauled themselves up on the beach within sight of each other. But the survivors’ celebration soon faded as they realized that each spoke a language unknown to the other.

Immediately they had the same thought, “I don’t speak his language, but if we’re going to survive, we have to find a way to communicate.”

In many ways, this tale actually plays out every day. But instead of on the high seas, our story takes place in the marketplace. And instead of shipwreck survivors, our real life players are small business owners and bankers.

Like the castaways in the first story, the latter two often realize that:

  1. They need each other to be successful
  2. They don’t speak each other’s language very well, if at all.

With so much common interest and so little mutual understanding, can these two create a successful survival story? Absolutely, but only if they have Blasingame’s Official Translator for Banks & Small Business. Here are a few key examples of how the Blasingame Translator works.

For small businesses to understand banker they must:

  1. Identify their banker as a success partner and their business’ best friend.
  2. Stay close to their banker when things are going well and even closer when things aren’t.
  3. Believe that an uninformed banker is a scared banker and a scared banker won’t help you.
  4. Pay attention to what motivates and impresses a banker, like attention to detail.
  5. Understand pertinent bank rules and regulations, so as not to ask for something that can’t be done.
  6. Reward banker loyalty with your loyalty.

For bankers to speak small business, they must:

  1. Understand that it’s redundant to say “undercapitalized small business.”
  2. Recognize that starting a small business is easy - operating a successful one is not.
  3. Explain banking rules and regulations more often.
  4. Realize that it’s the banker’s job to recommend services and products.
  5. In the credit scoring process, always find a way to give small business owners credit for character and past performance.
  6. Reward small business loyalty with banker loyalty.

For small business, and bankers to avoid being castaways, speak each other’s language and become partners.

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On my radio program, The Small Business Advocate Show, I recently talked with Mike Menzies, President of Easton Bank & Trust in Easton, Maryland, about the key elements of a successful relationship between a small business and its bank. Take a few minutes to click here to listen or download our conversation.

Check out more great SBA content HERE!

Watch Jim’s videos HERE!

Take this week’s poll HERE!

Working capital loans & independent community banks

Results of the The Small Business Advocate Poll from March 14:

The Question: As you grow your business over the next year, it’s likely that you’ll need a working capital loan to augment operating cash flows. If so, which of these options are you more likely to choose?

13% - National or large regional bank

31% - Independent community bank

22% - Credit Union

34% - “We don’t need no shtinking bank loan!”

Jim’s comment: For over a decade, I’ve been telling small business owners that their most reliable banking relationships, through thick and thin, would be one with a locally owned bank or credit union that practiced relationship banking. It’s good to see that of those who would currently consider using financial leverage, 80% would choose an option where relationships are valued more than a computer generated credit score.

Recently on The Small Business Advocate Show, Jim discussed the importance of having a relationship with an independent community bank with Gary Moore, founder of The Financial Seminary and author of several books, including Faithful Finances 101 and Spiritual Investments. It’ll only take 8 minutes to listen to what Gary has to say, he’s a pretty smart guy, and tell us your banking experiences - good and bad.

In praise of the independent community bank with Gary Moore




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