Posted on Friday, 3rd September 2010 by Christopher Allen
It’s always important to cultivate a strong relationship with your bank, but even more so during down times when business is challenging.
Banking relationships are simple: It’s all about trust. The best way to keep your bank’s trust is to be open and forthright about your business, and to be timely with information as well as payments. Here are the four essential rules for keeping your bank on your side:
1. Know your lending officer (and his boss).
Your banker is important to your company’s growth, so get to know him and make sure he knows you. Touch base regularly, keeping him up to date on your business. Create credibility for yourself every chance you get. Don’t wait until you have a problem to introduce yourself.
It’s advantageous to know several bank officers, so ask to meet your banker’s manager. Banks have turnover these days, too. If your banker leaves, you’ll still need someone to advocate for you if and when you want a loan. Besides, loans are approved not by individuals, but by internal committees. When you have a loan up for approval, you want as many people as possible on your side.
2. Communicate negative information wisely.
Banks don’t like surprises, especially unpleasant ones. If your company is in trouble, keeping it a secret from your bank is not a good idea.
Make an appointment to meet with your banker. Your goal for the meeting is to make the best of a bad situation. Don’t burst in, pour your heart out and throw yourself on his wingtips. Instead, plan your presentation carefully:
• Be honest, professional, and specific. Share your numbers, including sales and expenses.
• Explain why business is down. What percentage of customers have you lost to the recession? What other factors weigh in?
• Offer a viable plan for fixing your problems. Develop a concrete, detailed action plan. This is key — and you need a plan anyway.
• If you want help from your banker, figure out exactly what it is you want and ask for it very specifically.
• Project confidence. If you’ve faced your problems and are fixing them, you’ve earned the right to a can-do attitude. (Act like a loser, and that’s how you’ll be perceived.)
3. Use debt correctly.
Many entrepreneurs are reluctant to take on debt, especially now, but it’s difficult to build a business without it. Your ability to obtain debt is recognition that you are creditworthy. But debt is a tool to be managed carefully, as we’ve learned all too well.
Having bank lines available for soft economic times — like now — enables you to work on the business and not worry if checks are in the mail. It also allows you to take advantage of unique opportunities arising from the recession, without becoming cash-strapped. Don’t swear off debt entirely, or it may stunt your growth.
4. Ask for a loan the right way.
If you’re going to ask for a loan, you’ll need to provide your bank with at least three years of financial information plus a whole lot more, including:
• Assurance that you are of good character and that your business is sound.
• A detailed description of how you’ll use the loan money.
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