Face-to-face with a banker is still the way to go
Carl Bauer walked into Wells Fargo wearing a suit and tie. He wanted a loan for his first business, Navis Pack & Ship in Silverthorne. He wasnt sure what to expect, so he played it cool and professional. In retrospect, he would have been a little more unpolished in talking to a loan officer, he said.Bauer didnt know any local bankers, and he agrees with loan officers and business owners who say developing a personal relationship with a banker is extremely helpful.Having that relationship would make it easier, because then you could talk more freely about who you are, what your character is thats my take, Bauer said.And hes right.Bankers can see how responsible a person is financially its right there, in black and white. But integrity is more difficult to determine. The more secure a banker feels about the borrower, the better the chance of a loan approval.Character is definitely one of the larger things we look at, so having a personal relationship with the banker does speak to that character, said Michael Jungman, bank officer at Alpine Bank in Dillon.Jeff Campeau, president of 1stBanks in Silverthorne and Dillon, said having a personal relationship with a banker is not an advantage in obtaining a loan, because there is no favoritism, but it is an advantage in obtaining services.It can enhance the way that the relationship functions, Campeau said. Its better to know the customer in order to solve any issues and anticipate needs.”David Welsh, owner of Food Hedz in Frisco, tried it both ways. He took out two loans from two different banks 1stBank, which he had a relationship with, and another bank, which he didnt. The one he didnt have a relationship with refused to rewrite his note, so it cost him more money to hire an attorney to do it.Youre made to feel as a number and nothing else, Welch said about the larger bank he didnt have a relationship with.In comparison, 1stBank took time to explain jargon and suggested he consolidate his loans, which saved him money. It also covered an overdraft with no problem, whereas the other bank did not, Welsh said.Similar to other bankers, Susan Price, personal banker at Friscos Wells Fargo, underlines how important it is to accept lines of credit upon opening an account, because after that, lines of credit are hard to come by within the first two years of business. Bauer wishes he had taken more credit, because he didnt count on going five months without any revenue – so he exhausted his savings until business picked up.Local bankers, such as Price, also advocate for businesspersons. They can help sell the idea of loaning money to a business to their committee, said Phil Frank, senior vice president at Community Banks of Colorado in Eagle. Price introduces her customers to business bankers when they reach a certain level.Its my experience with the customer which gives (the business bankers) faith in the customer, Price said.Part of her personal relationship with customers involves pulling up financial reports every morning and alerting customers if theres a problem. Similar to other bankers, she advises them on credit, points out special programs and helps them feel comfortable. Historically, banks had a reputation that theyre hard to come and talk to, said Dan Godec, outgoing regional president at U.S. Bank in Eagle County. In general, banks are doing a better job becoming more approachable, just if you have questions. Theres not the mysterious banker behind the desk; its more of a two-way dialogue.And thats exactly what Bauer learned.Now, Id ask questions like, What if I cant make a payment, he said. And Id say, Tell me what I should be asking, if Im not already asking it, and I wouldnt care (in a self-conscious way) what they thought.
Points to consider when applying for a loan: Every application needs positive credit merits to be approved. Business loan applicants must have a reasonable amount invested in their business. Bankers examine the debt-to-worth ratio of the applicant. Sufficient equity is particularly important for new business. However, low equity in relation to existing and projected debt the loan can be overcome with a strong showing in projected profits. Applicants are generally required to provide a report on when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection, broken down on a monthly basis, covering the first annual period after the loan is received. When the projections are for either a new business or an existing business with a significant (20 percent plus) difference in performance, the applicant should write down all assumptions that went into the estimations of both revenues and expenses. Working capital is essential for a company to meet its continuous operational needs. If youre looking at an SBA loan, adequate collateral is required. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor. The ability of individuals to manage resources of their business, sometimes referred to as “character,” is a prime consideration when determining whether or not a loan will be made. Managerial capacity is an important factor involving education, experience in managing resources and motivation. Some key ratios all lenders review are: debt to worth, working capital, the rate at which income is received after it is earned, the rate at which debt is paid after becoming due, and the rate at which the service or product moves from the business to the customer. Source: Small Business Administration, http://www.sba.gov.
How much money do you want to borrow? Why do you want the money, and how will it be used? What is the primary source that will generate the funds to repay the loan, such as selling a building, selling inventory, or increased business? What is the secondary source of repayment, such as liquidation of equipment or injection of additional capital by the firm’s principal? How will the loan be secured (collateral)? Who will guarantee the loan? (The owner should be taking more risk than the banker.) <i>Source: Small Business Administration, http://www.sba.gov</i>
– Interview various bankers to find a good fit.- Understand the bankers vantage point: Bankers take credit risks because of the potential payoff theyre not risky investors.- If your business is going poorly, first try to determine the cause and develop a plan to remedy it before talking to your banker. If things get worse, let your banker know; its better than surprising him or her. You also may want to alert bankers when you gain a major account or competitor.- Talk to your banker at least quarterly; some clients talk weekly.- Invite your banker to your business.- Remember, a relationship takes communication, time and trust to grow.Source: Small Business Administration, compiled by Kimberly Nicoletti