Seven Tips from Bankers

While it is critical for small businesses to do the work to , let’s face the truth about access to credit in prolonged tough economic times: It’s about relationships.

After talking with senior lending executives in seven mid-size community/regional banks across the country, I believe they want to help local businesses grow and succeed. They prefer to work with established companies or with start-ups where the founder has a successful track record. Most important, I learned (off the record) all of them are more likely to lend money to customers they know, even when they’re less qualified on paper, than someone they don’t know.

If you want your business to qualify for a loan on its own merits, you can pay before invoices are cut to drive your D&B Paydex score as high as possible; you can have accounts reported to all three business credit reporting agencies; you can become the picture of impeccable credit practices. All of this is important. However, loan money is tight for small businesses. If you’re unknown to a bank or credit union, your chances of garnering a loan can be limited. Fortunately, this is an easy problem to solve.

In previous columns focused on , I’ve urged you to interview banks and credit unions before you choose one where you feel comfortable and where you know you’ll enjoy building rapport with the staff that manages their small business accounts.

Relationships Produce Credit
Suggestions from small business lending officers:

• Make your bank your de facto partner by your attitude long before you want a loan.
• Habitually tell your financial institution about your business.
• Join, and become actively involved in civic and professional organizations, where you can easily establish relationships with managers from your bank or credit union. Groups mentioned included your local Chamber of Commerce, Rotary, Lions Club, Kiwanis, merchant associations, Junior Achievement, and various ad hoc committees that join forces to support some aspect of local business success.
• Begin community involvement when you launch your company.
• If you’re a novice at business finance, meet with your bank’s small business loan officer. Tell him or her that you are learning, and you’d like his/her advice because you are committed to building a thriving enterprise. Tell the banker you will eventually need to borrow money to expand your business, and you want to be certain you have done everything you need to do so your business will qualify for a loan. Show them your plans and ask for advice.
• Your banker can figure out your cash flow with ease. They see what you’re depositing and what you’re spending. Don’t try to fake it. If a banker believes you’re tending toward anything shady, you will never be approved for a loan.
• Relationship-building is not a one-shot deal. It happens over time – with your banker and your friends. Although you’re swamped and don’t want to be bothered, make time to know your banker.

Two bankers told me they had a few founders of online businesses, who have been model customers. In all cases, the businesses were bootstrapped so they began with extremely small account balances. The founders all explained what they planned for their businesses, when they opened initial accounts. And every couple of months they’d return to update their banker. Everyone in the banks became excited about their growth. All of these founders also involved themselves in community affairs although they had no brick and mortar stores. Maybe they needed to escape from the cyberworld. The reason didn’t matter. I asked if they’d applied for loans. Two had, and they were rapidly approved. The banks felt they had close working relationships with the founders. In addition, they knew how well the businesses were doing before looking at a loan ap. Both banks expected additional loan applications from this online group in the future, and they anticipated approving them.

It’s likely that the opinions of the bankers I interviewed reflect the views of your local banker. If you’re hibernating in your business cocoon, reorder your priorities to develop a positive community reputation and a constructive relationship with your banker.