Tag Archive for 'banking'

How to get a bank loan: Part Two

Since most businesses have been deleveraging post-2008 financial crisis, you could be forgiven for getting rusty at how to ask for a loan from bank. But as the economy picks up and you need growth capital, it’ll be handy to brush up on your banking skills.

Last time, I used the customer qualifying process as an analogy for how to work with your banker to get a loan, and offered the first three of six loan request factors: Who makes the decision, what do they need and how do they want it? Now let’s talk about the last three.

What motivates them?

All banks need to make loans, but all banks don’t like the same kinds of loans. Some banks make working capital loans, and some don’t. Most banks make real estate loans, but each one has its own profile of what kind of real estate they like. And all banks like to loan money for things with serial numbers, like vehicles and equipment. In your first meeting, what the banker says about your proposal should indicate their level of interest in your type of loan. But if not, it’s okay to ask.

Banks will fight for loans, but they’ll kill for deposits. Checking account deposits are virtually free money to a bank, a portion of which they use to make loans. They like personal checking accounts, but LOVE business accounts. A bank’s motivation increases with your daily deposits if you place your operating account with them. You should know the value of your deposits to a bank and use that information to negotiate rates and terms.

How motivated are they?

You can tell how motivated a bank is by how helpful the loan officer is.  Her excitement is no foreteller of success, just of motivation.  But if she seems indifferent or unmotivated, that’s probably not a good sign.

A deal that couldn’t get through the front door of Bank A this morning, could be received with a red carpet at Bank B this afternoon. So be prepared to take your proposal to more than one bank. And be sure at least one of the banks you make a loan proposal to is an independent community bank.

What do I have to do?

Bankers love field trips. Give your banker a demonstration of the new equipment the loan is for, or take them to see the real estate you want to buy. Show them how the object of your loan request will help you grow your business, profits and deposits.

The best way to get a business loan is to do your homework, anticipate what your banker needs and get them what they ask for. And if the bank that was loyal to you when you needed them doesn’t have the best deal — but it’s a deal you can live with, “dance with the one that brung ya.”

Write this on a rock …

Understanding how banks make business loans will improve your chances of getting one.

How to get a bank loan: Part One

One of the markers of this post-recession, so-called recovery has been the practice of deleveraging. Across the economy, from consumers to businesses large and small, debt has become something to get rid of.

Out here on Main Street, this trend has manifested in a dramatic drop in bank borrowing by small firms. Indeed, for more than a half decade, survey after survey has shown that less than 5% of business owners report their borrowing requirements have not been met, while the majority say emphatically they don’t want or need a loan. Consequently, there’s a pretty good chance your business hasn’t made a loan request to a bank in a while.

But the economy will eventually kick into an expansion phase, and what has become no less than a de facto moratorium on borrowing won’t last forever. And since most small business growth capital comes from bank loans, even for well-capitalized firms, it’s always good to revisit a few banking relationship fundamentals.

But don’t worry. If you’ve never asked a banker for a loan, or if it’s been a while, getting a bank loan is a lot like the process of qualifying a prospective customer. For example, you want to know these three things:

1. Who decides?

You have the right to ask who is going to make the decision on your loan. Can your loan officer decide, or will it go to the local loan committee or somewhere else? Why do you care? The more people involved in the loan approval process increases the scrutiny of your deal, which means more questions and more time for you to budget from proposal to answer.

2. What do they need?

Your banker will ask for personal and business financial information. They might accept last year’s business numbers, but they could also ask for an interim report. Depending on the size of your request and what you’re using the money for, they may ask for a business plan. If the loan is for real estate, a current appraisal will be required.

Don’t give the bank more than they ask for, but give them everything they ask for. Remember, the quicker your banker gets the information, the quicker you’ll get an answer.

3. How do they want it?

Ask your banker what information can be presented verbally and what needs to be in writing, whether hard copy or electronic. Whether you’re borrowing $5000 for a computer, or $5 million to buy out a competitor, knowing as much as you can about the loan approval process will significantly improve your chances of not only getting a quick answer, but a yes.

Next time, Part Two: What motivates your banker.

Write this on a rock …

Qualify a bank like you do customers, and be sure to do your homework.

I Loved Mike Menzies

Mike Menzies was an original, founding member of Jim’s Brain Trust, going back more than 16 years to 1998. This is Jim’s tribute to his good friend.

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There’s a disturbance in the Force.  Mike Menzies is dead.

There’s an empty locker at Team Menzies. Their champion, devoted husband of Midge, proud father of Mike Jr. and Cal, has left the stadium for the last time.

There’s a boat on his beloved Eastern Shore, motor still, lines secure. Captain Mike won’t be takin’ ‘er out anymore.

There’s a quiet office at Easton Bank and Trust. Those honored to have been led by Mike for so long will now be sustained by memories of how he conducted himself with grace and professionalism.

There’s a hole on Main Street in Easton, Maryland. Without Banker Mike, to whom will small business owners now turn?

There’s an enormous void in the marketplace of ideas just now. When Mike spoke, people listened. At a time when we can ill afford it, one of the most compelling, knowledgeable and fiercest voices for free markets has been silenced.

There’s a new fault in the banking landscape today. As the industry trends toward giant banks, independent community banks have lost a giant.

Emotions are raw, the sadness overwhelming. Women are lucky—they weep. Men well up, but tears are scarce because we begin with anger. Then tightened jaws become unspoken feelings stipulated with a nod to each other. And finally Mike stories shared out loud with laughter. Mike would be angry if we didn’t laugh.

And stories and laughter there must be in the world Mike Menzies has left behind. How else can we honor the way he blessed our lives in his much too short life? What better way to celebrate Mike’s abundant life?

As singer-songwriter Warren Zevon was losing his own battle with cancer, he was asked what he had learned about life. Zevon said, “Enjoy every sandwich.” Mike Menzies enjoyed every sandwich. And if you ever had the fortune to be in his company, he made sure you did too.

There’s a disturbance in the Force today: Mike is dead and our lives will never be the same.

Mike Menzies made a difference. He was an enormously important and benevolent force who made the world a better place.

And I loved him for that.

SBA Poll: Primary Business Accounts

The Question:
Which do you use for your primary business checking account and for business loans?

40% - One of the large national banks (like Bank of America, Wells Fargo, etc.)

52% - A community bank (locally owned with just a few branches)

7% - A credit union

My Comments:
For all small businesses, retained earnings - profits left in the business - are the most important source of working capital. But for most small businesses, the largest source of capital comes from bank loans. That’s the reason I’ve continued to remind you every year that the most important relationship a small business has - besides with customers - is with your bank.

There is some very interesting research that has been published recently about the banking industry. In next week’s Feature Article, I’m going to connect some of that research with the poll responses you see above. Stay tuned.

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You can find this week’s featured article HERE

Check out more of Jim’s great content HERE!

Take this week’s poll HERE!

Watch Jim’s videos HERE!

The Small Bank–Small Business Cascade

America is exceptional for many reasons, not the least of which is the way our pioneer DNA morphed into entrepreneurship. But all DNA has to be nourished, and the food of entrepreneurship is capital.

As America’s pioneers claimed Manifest Destiny they simultaneously created businesses and markets, which were funded at first by sweat, blood and personal capital of the pioneer/entrepreneurs themselves. As businesses and markets grew, additional capital was needed, which was provided by another American invention: locally owned banks. Today we call them independent community banks (ICB).

There are a number of reasons America became the world economic leader. But no factor was more important than the financial, legal, regulatory and trust environment that fostered relationships between ICBs and small businesses. These two Main Street sectors formed a symbiosis that simply does not exist anywhere else on planet Earth. Indeed, without this symbiotic relationship, the twin pillars of the American Dream – home and business ownership – would not have been possible, nor would the financial foundation of American exceptionalism.

Alas, this unique relationship may be in peril. But not because of anything the two primary partners have done.

The financial crisis of 2008 shined a bright light on the behavior of large financial institutions, which had become too complex to regulate, too big to manage and, according to the government, too big to fail. But as the federal government and regulators attacked this crisis, ICBs are becoming collateral damage as the new regulatory regime does not differentiate enough between big banks and small ones.

It’s troubling enough to learn that existing ICBs are finding it difficult to manage under the new regulatory pressures, but that’s not the worst of it. Prior to 2008, when an ICB closed or was acquired by a larger bank, the marketplace would produce a new ICB to fill the newly vacated relationship-banking niche. But the following stats foretell an alarming trend.

According to the Independent Community Bankers of America (ICBA), there are 1,119 fewer ICBs today than in 2007. Only 96 new ICBs were chartered from 2008 to 2010, and since 2011, there have been no new ICB charters. Not one in 18 months! And if industry experts are correct, the net number of ICBs will continue to drop, ultimately to a dangerous level.

There are many causes of this alarming trend, but presently the biggest offender are the one-size-fits-all “solutions” being imposed by overreacting politicians, overreaching regulations and overzealous regulators.

In nature, when one member of a symbiotic relationship is diminished, the other is usually harmed too. Fewer independent community banks will result in a weakened small business sector. I call this trend The Small Bank–Small Business Cascade, and it must be stopped.

Small businesses are not only the backbone of the U.S. economy, they’re also the seedlings of future big businesses and the personification of the American Dream.

America, beware The Small Bank–Small Business Cascade.

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I’ve talked with Mike Menzies, President of Easton Bank & Trust in Easton, Maryland about the dwindling number of independent community banks in the U.S. and the impact on small businesses. Click on one of the links below to download or listen.

The symbiosis of small banks and small businesses

Why fewer community banks is not good for small business

Check out more great SBA content HERE!

Small Business Advocate Poll: National Bank, Independent Bank, or Credit Union?

The Question:
With which of these three do you have your primary business banking relationship?

60% - National or large regional bank

36% - Independent community bank

4% - Credit union

My Comments:
In our most recent online poll, over 60% of respondents to our most recent poll chose “National or large regional bank” as the financial organization they have their primary relationship with. A little more than a third chose, “Independent community bank,” and only 5% said “Credit union.”

As you may know, for most of two decades, I’ve advised small business owners that not only should one of their banking relationships be with an independent community bank, it should be their primary bank - the one that has your deposit account and is your go-to bank for a business loan.

Blasingame’s 2nd Law of Small Business states: It’s redundant to say “undercapitalized small business.” This truth is why small businesses need a bank relationship that’s heavy on the relationship part; with a bank that has one of its founding principles to serve small businesses in the community, including making local loan decisions by humans, not computers.

I never said there was anything wrong with the big banks. In fact, I have recommended that small businesses should have a second relationship with a larger bank. One good reason is because if your business grows to a point where you have multi-millions in annual revenue, you could outgrow your beloved community bank and that’s when only a large regional or national bank will do.

But my advice to maintain a relationship with a locally-owned and governed community bank turned to prophecy when, in 2008, the national chain banks and the large regionals got caught up in the financial crisis and they basically abandoned small businesses. They didn’t do this to be mean; they did it to survive.

Big banks are trying really hard to recover the ground they’ve lost in the past three years, so perhaps their plan is working. Also, loan demand by small businesses is still very low, so the computer-generated, credit-scoring method of loan evaluation practiced by the big banks is not yet putting pressure on these relationships.

Nevertheless, I still believe that, regardless of any other banking relationship, a small business should have an active relationship with an independent community bank - if for no other reason than long-term survival.

Recently on The Small Business Advocate Show I talked with my friend and Brain Trust member, Mike Menzies, President of Easton Bank & Trust in Easton, Maryland about the independent community bank landscape and how independent banks are faring in this economy. Click on one of the links below to listen or download.

The economy, small businesses and independent banks

The independent community bank landscape

Check out more great SBA content HERE!

Take this week’s poll HERE!




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