Navigating the new small bussiness banking world

Sugestions for improving your chances of getting a small business loan

Understand today's lending process is different and will probably never be like it used to be in the days or easy money. Over the next few weeks I'll suggest several concrete steps a small business can take to improve your chances of getting financing.

 

The older I become the more I understand my grandfather’s lamentations about the “good old days” being gone for good. I used to argue with him “whipper-snapper style”. He would just shake his head and say, “One day, you’ll see.” Sure enough the changes we have seen in the last 4 years in the banking world would make his head spin. We have literally witnessed the exodus of decades of business traditions and the overnight installation of a new sheriff. Now we have to play by old rules, new rules, and yet to be learned rules. And play by them we will if we want to play at all. The rules all boil down to who “backs” the depositor’s money. Back in the “good-ole days”, the local bank’s shareholders provided the capital that funded the reserves - that backed the loans - that the loan officers made from the depositor’s money. If a bad loan was made, it was reflected in the shareholder’s dividends or their equity, period. There was no need to get the FDIC involved.

In the interim halcyon days, many real estate loans were made into securities and sold on exchanges. Holders of that debt never saw the property, the borrower or cared about the business' integrity beyond the investment position. Today, after all the carnage we have lived through, many banks don’t have enough capital left in their shareholder’s reserves to cover many more bad loans. The FDIC was just a few steps away. With death at their door, many banks (and as it unfolded, ALL BANKS) are forced into answering to the bail out “new sheriff” and new rules. Our government does not give up control once it has it. Don’t forget, for about 80 years ago, our banking industry was virtually unregulated and there was no such thing as FDIC insurance. The old ways are dead and a new banking game is in play. Times change, the borrower has to move on. Time to adjust to the new banking reality if you need financing. Here are some suggestions to facilitate working successfully in the new banking reality.
 

Say what you do and do what you say.

Conceptually, this sounds easy and even… remedial. But it is even more important today than ever. We live in an era of “I’ll believe it when I see it” mentality. Exaggerated advertising and political claims are the currency of marketing and governing. Promises are given freely with no more care of sustainability than last week’s flowers. There's an attitude that if I can get by with it, then it was “OK”...especially if no one was looking. Alas people do look, even if you don’t see them; bankers especially. Their success is based on the capacity to tell financial fact from fiction. If you want to distinguish yourself from others, especially in these trying times; make it a point to always do what you promise. A valiant attempt and failure is far better than no attempt at all. (This is not intended as a morals lesson, but it is darn close.) If the people who surround you in your business world know you will do as you say, you can move mountains… believe me, I know. If you know you cannot or even think you might not be able to keep your word, don’t give it and make sure they understand your pledge has a caveat. People who do as they promise will get more breaks, especially from the bankers. It is worth the effort to build that reputation.

 

Banking is a business built on promises. The bank promises to loan an amount of money for a given time. You promise to pay based upon a schedule. With all of the defaulted loans over the last several years, bankers are gun shy and really don’t care if you “pinky promise” or threaten to “stick a needle in your eye”. They only want results that can be substantiated with cold hard numbers that they can verify. If you have not missed a payment during these last years, be sure you point that out because that is a “woo-hoo!” for you. If you have not been so fortunate, don’t stick your head in the sand, re-habilitate yourself. Go to your lender with your hat in hand and explain why your efforts did not succeed. Make a point of candid apprasial. Don’t think you are going to blend in and the deficit will go un-noticed in a crowd. Stay in constant contact with your bankers. Let them know your business successes as well as your potential pitfalls; they are going to find them out anyway. It’s much better to work through a stage one problem than to wait until it is a full blown stage three crisis. If you give them a game plan, make sure you carry it out to the letter. Call them if you are having a problem; don’t make them call you. Keep their trust in you as high as you can, it is your most valuable asset


  
  

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