As mentioned in the first of this two-part series, most businesses deleveraged during what I call the Main Street economy’s Lost Decade — 2007-2016. That means they paid off debt and didn’t add any.
So those folks — possibly you — can be forgiven if they’re a little rusty at asking a bank for a business loan. But as the current economic expansion picks up, and you need growth capital to respond to the new opportunity, it’d be handy to brush up on some banking skills.
Last time, I revealed the first three of six loan request questions. Getting comfortable asking for or discovering the answers will improve your chances of getting a loan approval. In case you forgot, the first three are: Who decides? What do they need? How do they want it? Now for the other three.
What motivates them?
All banks need to make loans, but all banks don’t like the same kinds of loans. Some make working capital loans, and some don’t. Most banks make real estate loans, but each one has its own profile of what kind of real estate they like. And all like to loan money for things with serial numbers, like vehicles and equipment. In your first meeting, what the banker says about your proposal should indicate their level of interest in your type of loan. But if not, it’s okay to ask.
Banks will fight for loans, but they’ll kill for deposits. Checking account deposits are virtually free money to a bank, a portion of which they use to make loans. They like personal checking accounts, but LOVE business accounts. A bank’s loan motivation increases when you have an operating account with them. You should know the value of your deposits to a bank and use that information to negotiate rates and terms.
How motivated are they?
You can tell how motivated a bank is by how helpful the loan officer is. Her excitement is no foreteller of success, just of motivation. But if she seems indifferent or unmotivated, that’s probably not a good sign.
A deal that couldn’t get through the front door of Bank A this morning, could be received with a red carpet at Bank B this afternoon. So, be prepared to take your proposal to more than one bank. And be sure at least one of the banks you make a loan proposal to is an independent community bank.
What do I have to do?
Ask your banker to go on a field trip. Bankers love to visit businesses, like yours. Give your banker a demonstration of the new equipment the loan is for, or take them to see the real estate you want to buy. Show them how the object of your loan request will help you grow your business, profits and deposits, and especially if your loan will help you grow jobs.
The best way to get a business loan is to do your homework, anticipate what your banker needs, and get them what they ask for. And if the bank that was loyal to you when you needed them doesn’t have the best deal — but it’s a deal you can live with — as my grandmother used to say: “Dance with the one that brung ya.”
Write this on a rock … Understanding your bank and the loan process will help you improve your chances of getting a loan.