Bankers and business owners are frequently at odds with each other, mainly because their mindsets are worlds apart. But understanding how your bankers think and what they look for can have a positive effect on your banking relationships and make it easier for you to get money when you need it.
Vistage Speaker Lee Katz offers these 10 C’s of lending to help you get the most out of your dealings with banks:
- Character. Character is of utmost importance to bankers. This is where your mettle gets tested. When the chips are down, bankers need assurance that you’re going to do the right thing.
- Carelessness. This usually comes down to poor record keeping. Carelessness can cause banks to lose loans and/or lose their US government loan insurance, so they look at how you run your shop.
- Complacency. Banks are interested in how you react to things. Do you keep the bank updated on what is going on in your business, or do you tell them only when you absolutely have to?
- Contingency. Is there a plan for orderly succession in your business if you die suddenly or become incapacitated? Bankers are very concerned about stability. You should have a plan in place in case of a catastrophic event.
- Capital. This is your net worth (total assets minus total liabilities). When you have a bad year and you have a cash crisis within your company, you have minimum equity. Bankers are always on the lookout for an extra cushion of equity so they can be more flexible with you in case you have a bad year.
- Collateral. Collateral does not repay a loan, but bankers will try to get as much collateral as possible since they are generally not good at liquidating with your interests in mind. Additionally, the more collateral they have, the more leverage they have.
- Capacity. This is your ability to repay. Bankers check to see if you have champagne tastes but beer pocketbooks.
- Competition. Banks are concerned about their competition with other banks in regard to interest rates, collateral packages and guarantees. You can use this to your advantage.
- Controls. Bankers always want to know what kinds of controls you have in your company. Do you have checks and balances in the following areas: payroll, controllers, CFOs, inventory? Are you watching the back door?
- Communication. Don’t keep things from your banker. You may want to slow things down for strategic purposes, but you don’t want to withhold information. Bankers need to be made aware of what is going on so they can work with your company. Bankers don’t appreciate surprises. When they get surprised, their knee-jerk reaction is not always to your benefit.