I have always been afraid of banks. Andrew Jackson, 7th President of The United States
A least once a month a small business client tells me that a “banker” has offered to lend the business money and wants to know what I think.
Wow, that’s a loaded question. I don’t want to burst my client’s bubble. The business is growing and that means they’re really strapped for cash. My client is thinking this “banker” is the answer to all problems. While we’re on the phone my client goes through his laundry list of needs. It’s almost like Christmas with visions of sugar plums dancing in their heads. They can buy that new equipment, have money to fund more growth (advertising budget, new salesperson) a line of credit to even out the uneven cash flow. Mr. Bank Relationship Manager - my client’s savior!
So now I must talk them down from the obvious high. Provide a cautionary tale or two. Bring some reality to the situation. All while still being encouraging and understanding of the situation.
First, I make clear to that the “banker’s” job is solicitation and sales. This friendly, well-meaning individual’s sole job is sales. Put people in the seats to then be qualified by “underwriting”. Underwriting, those mysterious people that never talk to the customer but rather talk through the relationship manager.
I make sure I get the cold hard facts out to my client. The underwriters will be asking for three years’ financials and/or tax returns, aged accounts receivable, aged payables, inventory amounts, real property owned. In a small business situation that will almost certainly ask for a personal guarantee. All these things will take time, energy, effort, money and will divert from the real goals: sales, collecting those old receivables, improving process and getting debt under control.
I then remind them that the current bank has been unwilling to extend more credit. What makes them think the new bank will lend?
Trying to not punch my client too hard I throw out a couple of possibilities. Maybe the new bank likes his industry and the old bank is looking to move out of his industry. Maybe the bank relationship manager represents the new bank in town and they’re lean and hungry. Willing to lend at better terms and they’re a bit more of a risk taker to grow. Further, maybe the bank that he’s currently doing business with owns a big percentage of the local market and has gotten lazy.
People often forget that banks are businesses too. They have their own business strategies that impact their lending and collection decisions. Also, be sure that most banks are publicly traded and therefore are making decisions by the quarter.
Before we finish the call, I suggest to my client that I’ll review his current financials, have a brief talk with the “banker” to better understand the bank’s current lending practices and then I’ll report. I also tell my client we should do some work to “clean up” their financials.
Next week’s blog – A Cautionary Tale – The Bank’s Special Asset Division
I AM MY CLIENT’S ADVOCATE. MY JOB IS TO HELP MY CLIENT GET THE BEST DEAL AVAILABLE. EVERY SMALL BUSINESS NEEDS SOMEONE WHO UNDERSTANDS WHERE THEY ARE, WHERE THEY’RE GOING, AND IS BOTH WILLING AND CAPABLE TO HELP THEM NAVIGATE THE MAZE CREATED BY THE GOVERNMENT, BANKS, REGULATORY AGENCIES AND THE OTHER MYRIAD HURDLES.
THAT’S WHAT WE DO EVERY DAY AT MYBOOKS. NOT YOUR TYPICAL ACCOUNTANT.
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This is intended for general educational and/or informational purposes only and does not replace specific, independent professional advice.