Chamber Wisdom: Guidance To Get a Banker to Say Yes

Everyday business owners contact our chamber teams seeking business guidance. So, why don’t we put more effort into marketing our advisory services?  Referrals, insights, acting as a sounding board, mentoring or providing that all important encouraging word – these are just a few of the services that business communities everywhere seek from their chamber. And the chamber is well-positioned to provide these services. “But I’m not an expert!”, our colleagues often say. Fact is, you don’t have to be. Whether its finance or government relations, business development or customer service, chances are you and your team have insights that can at least point business owners in the right direction, or provide access to someone that can advance their thinking on a current problem or opportunity,

I want to share with you one example of guidance I often provide to owners of growing businesses on the issue of financing.  First, put yourself in the business owner’s shoes. Securing a loan is a crucial step for many businesses looking to expand or stabilize their operations. As a former banker, I can attest that understanding the decision-making process can be daunting for entrepreneurs. However, the best advice you can give your chamber member is to be well-prepared. It can significantly increase the chances of getting that much-needed approval. Here's what your customer needs to know and do before meeting with their banker – a tip sheet on the key criteria banker’s assess during the loan evaluation process.

Growing businesses need cash.

Chamber guidance can be so valuable at this time in a business owner’s journey.

Preparation is Key

Before you even step into the bank, thorough preparation is essential. This involves gathering all necessary documentation, understanding your financials inside out, and being ready to answer detailed questions about your business. Here are the steps you should take:

1. Prepare Your Financial Statements: Ensure you have up-to-date financial statements, including income statements, balance sheets, and cash flow statements. These documents should reflect a clear and accurate picture of your business's financial health.

2. Develop a Solid Business Plan: Your business plan should outline your business model, market analysis, competitive landscape, and strategic plan. This shows the banker that you have a clear vision and a roadmap to success.

3. Know Your Numbers: Be ready to discuss your financial ratios, profit margins, revenue streams, and expenses in detail. This demonstrates your command over your business operations and financials.

4. Understand Your Credit Score: Your personal and business credit scores are critical. Ensure there are no discrepancies and be prepared to explain any issues or past defaults.

What Bankers Look For

As many of you know, I like mnemonics. They help my simple mind to remember key facts. The mnemonic that fits best when applying for a loan is BEAMISH. Is your loan request BEAMISH? Does it pass the BEAMISH test? To better explain, when evaluating a loan request, bankers consider several key factors:

B - Business Advantage: Bankers assess whether your business has a distinctive competitive advantage. This could be a unique product, superior service, or a strong market position. Highlight what sets your business apart from the competition.

E - Equity Investment: The amount of equity you have invested in your business shows your commitment and confidence in its success. The more skin you have in the game, the more likely bankers are to consider your loan request favorably.

A - Accounts Receivable: Strong and consistent sales orders, along with a healthy accounts receivable, indicate reliable cash flow. Be prepared to present recent sales data and accounts receivable aging reports.

M - Management Team Quality: The experience and expertise of your management team are crucial. Highlight the credentials and track records of key team members, demonstrating their knowledge of the industry and ability to execute the business plan successfully.

I - Industry Health: Bankers evaluate the state of your industry. Is it growing, stable, or in decline? Explain how your business is positioned within the industry and whether you are exploiting a niche market.

S - Security: Banks like to limit risk of non-payment. For significant loan requests, collateral as security for the loan is essential. This could be real estate, equipment, or other substantial assets. Clearly outline what collateral you can offer to secure the loan.

H - Honesty: Your reputation in the industry and your honesty are vital. Provide references from suppliers, customers, and previous employers. A strong, positive reputation can significantly enhance your credibility.

Questions to Anticipate

During your meeting with the banker, you should be prepared to answer the following questions:

1. What is the purpose of the loan? Clearly explain how much you need, for what it will be used and how it will benefit your business.

2. How will you repay the loan? Provide a detailed repayment plan, including projected cash flows and repayment schedules.

3. What are your business's strengths and weaknesses? Be honest about your business's position and have strategies ready to address any weaknesses.

4. What collateral can you provide? Detail the assets you can offer to secure the loan. If your assets don’t cover the size of the loan, be prepared for a higher interest rate on the loan.

5. What is your experience and track record in this industry? Highlight your background and any relevant achievements that demonstrate your capability to manage and grow the business.

Best Responses

1. Be Transparent: Honesty goes a long way. Be upfront about your business's current state, challenges, and how you plan to overcome them.

2. Provide Evidence: Back up your statements with solid evidence, such as financial reports, market research, and testimonials.

3. Show Confidence: Display confidence in your business and your ability to repay the loan. A well-prepared and confident presentation can make a positive impression.

Final Thoughts

For loan applicants, the more you know and the more prepared you are, the more confident you can be during your loan request meeting. Understanding the key criteria bankers assess and preparing thoroughly can significantly increase your chances of getting that much-needed approval. Remember, the goal is to demonstrate that you are a low-risk, high-potential borrower with a solid plan for success.

For chamber leaders, don’t underestimate what you know and who you know and how you can leverage your past knowledge and experience to mentor entrepreneurs. Chamber wisdom is a valuable asset.