Understanding How to Navigate the Bank Lending Process
Banks and other lenders are difficult to predict in their loan decision-making processes. Having been on the inside of banks, loan committees, and lending decision-making for the past 16 years doesn’t really give me a better crystal ball, but I can relate some information that I know by experience that may help you if you are seeking a loan from a bank.
Banks All Have Unique Personalities
Don’t assume that all banks make lending decisions the same way. They don’t. The same bank may even make a totally different decision on the same loan this week verses next week. In some ways banks are enigmas that are hard to predict and figure out. I recommend you find the loan officer in a bank that you may want to do business in and coax him or her into learning about your business. The more a loan officer knows about your business the greater the chance you will obtain credit (assuming you don’t have any skeletons in your corporate closet).
During your courtship with the bank loan officer get to understand how lending decisions are made in their bank and find out how much participation he or she has in the process. If your loan officer is directly involved in the presentation of your loan application to a lending authority or credit committee, you have a greater chance of getting a loan done. I have seen loan officers strategically work their loan authority so when the decision is ready to be made the single or multiple decision makers know what the high and low points of the loan are. If I had to give one single piece of advice it would be to know how successful your loan officer has been (i.e. how many loans they have made over the past two years) and how motivated he or she is about getting your loan approved.
Play the Field Before You Pick a Banker
Unless you have gotten a stellar bullet endorsement of an individual banker get to know more than one before you begin the courtship process. In a city of 500,000 you might find 3-4 that really shine at making small business loans. It is a little like finding a needle in a haystack.
Why Do Bankers Say No?
The simple answer is that it is easier to say no than to say yes.
Banks are not risk takers. They are not venture capital firms. They don’t want to strike it big if you do. Most banks today earn a 2-3 percent net interest margin. That is the net profit they will make on your loan. They aren’t looking for high risk, they are looking for safety. The old adage that banks will lend you money when you don’t need it is true. Translated, when your company is strong and financially stable you don’t need to borrow money. Your ratios are all great which is why the bank wants to lend you money. Some folks bellyache that that isn’t the way it should be, but it is.
I am a loan broker. I help small business owners obtain credit when there have been uneven profits, an event (like a natural disaster), or other reason why a business that would have ordinarily been able to secure their own business loan might not at this point in their business life cycle.
I have been working with a company for the past month preparing to take their loan request to banks in my region. Last week I presented the loan to four banks. All of the bankers are people I have known for a long time and who have made loans for my clients before. The first one didn’t like the loan because he didn’t like the type of collateral my client has. The second one was one of the big four banks. That loan officer simply said that their bank was tightening down on credit and she knew she could not get the loan done. The third one liked the company but didn’t like the company’s customer (the U.S. Corp of Engineers). The forth one is interested. So now that we have found a regional bank that has two branches in my town that is interested we start the courtship process. I hope we can have a loan funded in three weeks.
Since we have done our homework, we know how lending decisions are made in our target bank. My client is making a loan request just low enough that the decision can be made locally rather than in a city many miles away. I have already submitted a CD-ROM package to the bank with all the loan documents that the bank will need and in the next few days I will introduce the business owner to the bank loan officer who has asked his decision maker to be at the meeting. The bankers making the decisions will have already been prepped on the positives and negatives of the loan. If the meeting goes well, there may have to be one or two more meetings so that the bank can completely understand the business and the loan they are making.
This all may sound a little manipulative, but as long as you are honest with the right loan officer for your loan they can move mountains for you.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
Direct email: sam@lesliethacker.com
Twitter: @SMBFinance
