APPROACHING A LENDER
Generally speaking, starting a new business is a risky endeavor and no one is more aware of this than a banker. If starting a new business is a risk, then financing a business facing current financial problems is even riskier. The lender must be convinced that the proposition is sound and profitable and that you have the ability to make a success of it.
Plan your requirements well ahead. It is important to approach your banker early. A lender does not want to be approached at the last minute with a crisis situation such as a payroll you are unable to meet. He/she often needs time to assess the proposal. Also, it is often possible that the person dealing with you cannot approve the loan on his/her own.
Building a good working relationship with a bank is not always easy. Some people cannot understand why a bank will refuse to lend them money for business purposes or attaches what seems to be restrictive condition. If the bank does not lend money, it is probably because they recognize risks in your scheme in which they are not prepared to participate. Thus they could be indirectly looking after your better interests. By granting credit they actually could be doing you a disservice.
In choosing a bank, ask business acquaintances or local merchants about the bank they use. It is important to deal with a banker who will be interested in your business and will sympathize with your aspirations. It is often easier to build a relationship with a bank that is somewhat familiar with your type of business. Often local bankers develop a substantial amount of information about the kinds of businesses in their area which help them to understand and evaluate your requirements and financial status more quickly
It is advisable to approach more than one lender but do not shop for a bank too extensively. It is time consuming and most lenders work on the same principles.
If you are unfamiliar with a lender’s requirements regarding business loans, it is best to set up an initial appointment to discuss the lender’s policies without going into the specifics of your proposal. During this interview discuss such questions as: is collateral required? If it is, how much and what type? Does the bank have limitations on the types of businesses to which it will grant loans what are the repayment terms? What reports or supporting information do you have to make? Will the bank give a line of credits?
Put your proposal in writing in a form such as the framework given in the chapter of financial planning in this handbook. Make sure that adequate financial; data is included so the lender can assess your application on the basis of full information.
There is no need to approach a banker with trepidation. He/she is there to serve you. Be confident in your approach and be prepared to negotiate terms. It is best to set up a firm appointment first, so that you will get an uninterrupted hearing.
If the lender does turn down your application, it is important that you understand the reason why. It is possible that with some adjustments to your proposal, it could become acceptable.
Get to know your banker and be able to confide in him/her. Acquaint the banker with your business and prove that you are competent and progressive manager. Some loans officers are unable to recognize business potential and can often block legitimate proposals. If the bank assigns your account to someone who is not interested in learning about your business, ask for another person with whom you can work on a personal basis.
Earn your banker’s respect by showing good faith. Build a reputation for integrity by conducting your banking affairs in a logical manner. Observe the banker’s policies as this will assist in your help relationship. Keep the banker informed on all developments of your business. When a problem occurs, often reasonable solutions can be found if the business manager put forward an honest front with a plan to tackle it. Stalling and issuing U.S.. cheques, etc. will doom the business.
There are other methods to building good relationships with your banker. Provide financial data regularly to him/her. Provide copies of profit and loss statements, balance sheets, and budgets, supplying information on your firm’s finances help to build your reputation for integrity. Invite the banker to visit your place of business and explain your operating procedures and future plans.Next:Basic Accounting Records