How to make a banker fall in love with you
Today’s guest post is written by Gene Marks, small business owner, author and columnist. He writes regularly for leading US media outlets such as The New York Times, Forbes, Inc. Magazine and Entrepreneur. Learn more at genemarks.com.
I have a client named John and he runs a company near Philadelphia here in the US. And his banker has fallen in love with him. Now calm down, it’s not that kind of love. It’s a different kind. The business kind. In fact, John is quite popular with a few other bankers in the area.
John employs 80 people. He distributes cabling into the utility industry. And, as the utility industry recovers, he’s been growing. John’s company grosses about $12 million per year and nets around $700K, which is not bad. He owns the company with two other partners. He bought the company back in 1994 and has been profitable every year. He already owns two buildings, which he previously financed and now he wants to buy another down the street.
And the banks are falling over him. They all want to give him a small business loan. Why? Because John is the kind of small business owner banks in the US love.
He has assets. He has history. He has customers and contracts and enough cash flow to easily service the additional debt. He has personal collateral. He has two internal accountants. He generates monthly financial statements. He submits to a yearly review by an outside accounting firm. He pays his bills. He is growing. He is looking to hire more people. In other words, this is a guy that a bank can profit from. And why not? Banks are businesses too. They deserve to make money.
Now, look at your business. Do you have a history? Do you have customers? Contracts? Commitments? Backlog? Do you generate financial statements and get reviewed by an outside accountant? Do you have brick and mortar assets? Personal collateral? Are you growing? Will you be hiring more people? If you do, then your banker is going to love you, just like John.
If not,then he won’t. If a banker can’t profit from you he’s not going to want to do business with you. Bankers that offer SBA or other government backed loans must still go through the same process, incur costs, assume some risk. They’re not going to do this if you’re not the right kind of candidate. They learned this lesson over 10 years ago. And they paid the price for extending credit too easily. Maybe you can get a loan from friends or a smaller lender or microfinancer. Maybe crowdfunding will be approved in a way that benefits you.
But you’re not going to get a traditional banker to fall in love with you anytime soon. Unless you’re like John. That’s the kind of guy they’re looking for. You’ve probably got some growing to do before you reach that point. However, there are other options for getting a small business loan and many new companies that are creating alternative lending models just for small businesses like yours.
To learn more, sign up for my webinar on September 4 at 1pm PST about “Top-of-mind issues and options for financing your business in the US”.
This is part of Xero’s “Insomnia Busters” webinar series in which we bring together industry leaders and business owners to tackle top-of-mind issues that keep small businesses up at night.
In this webinar, I’ll moderate a discussion on the current small-business lending environment in the US and what Washington is doing. Guests from the Small Business Administration (SBA) and Kabbage will join the discussion to detail the types of funding available and what’s best for your business. These include SBA funding and alternative sources including crowdfunding from sites such as Kickstarter and financing from companies such as Kabbage that use the latest technology to review, approve and deliver funds within minutes.