How to speak banker
Sometimes dealing with a bank can be a confusing effort. So it is important to know the landscape and how to navigate your way around, all of the management team at Far West Capital are ex-bankers, so, we know these terms intimately, here are some common translations to some very complex terms, you may have heard.
- Please come back after your yearend numbers = you suck, please never call me again.
- I’ll check with loan committee = your information has just been lost.
- The regulators said no = I can’t bear to tell you how much our bank hates this deal. (Although these days this one is quite true)
In all seriousness, we all know how important a solid banking relationship is to your company, here are few simple steps you can implement to get you on the same page with your banker.
1. Quality financial information is more important than your “story” – yes they care about what you have to say, however the most important aspect of the commercial relationship is what you have done, not what you say you will. Focus on items that are tangible and that you can prove.
a. Have your historical information dialed in, get someone who has experience negotiating credit facilities to help you, like your CPA, if they are confused or hesitant, get a new CPA.
b. Projections – should include your projected cash flow – this is the most important piece for you to answer, obviously you need to be aware of the effect the borrowed capital will have on the business and how you will pay it back.
c. Important Financial Ratios, you should be able to speak to: your personal financial condition including your credit score, your debt to equity, and debt service coverage ability.
2. Understand the decision making process – Probe around the following:
a. If the person you are speaking to has direct lending authority – obviously better for you to get as high up the food chain as possible
b. The bank’s legal and internal lending limit – want to get to know their sweet spot and if you are close to it
c. Does the bank use a committee? How often do they meet? What is the timing?
d. If you are not getting very clear answers, you may want to move on to an officer who can answer questions and not waste time.
3. Understand the role of the bank – we hear a lot of frustration coming from entrepreneurs – some of it warranted because of the unclear nature that sometimes emerges from banks. However, here are a couple of myths that need to be debunked.
a. The bank should fund my losses – what do they care – my collateral is good. No they don’t – nor should they, if you lose money on a very regular basis, you should be looking for an equity partner. The bank is there to support well capitalized business. If you put in three dollars, expect the bank to put in one dollar. As an entrepreneur, you are passionate about your story, and you should be, but the bank sees thousands of deals and is not really paid to prognosticate about your future that is for Venture Capitalist, Angels, Private Equity investors.
b. The bank should give me a line of credit to fund the rapid growth of my company. If you are going to double or triple your business and you do not have a significant base of capital “underneath” the bank, they are apt to turn your request down. Check your leverage ratios going forward and don’t expect the bank to stretch out past 3:1. This is why there hundreds of independent finance companies in the United States. Asset Based Lenders and Factoring Companies who specialize in funding the rapid growth are in business for a reason.
If you have questions or just want someone to help you prep for a bank meeting or request, please give us a call 512-527-1111, we would be happy to help.