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Ask Allen: How do I communicate effectively with banks?

How do I sell my business model to a bank?

--Trying to get traction.

As “Location, Location, Location” is of utmost importance to fast food chains, car dealerships, and branch banks, “Communication, Communication, Communication” is analogous as it pertains to banking relationships. The difference, however, is that you must communicate with a bank in the “Language of Business,” as addressed in our seminars. In this case, you should add communication of the goals that you are seeking.

Prepare well for your meetings, both initial and ongoing. That preparation involves (a) your having well-defined goals and (b) the ability to demonstrate how you are progressing in attaining those goals. I would approach the matter along these lines:

  1. Tell the loan officer about yourself, your family, education, etc., what you ultimately want to achieve and how you plan to go about accomplishing those achievements. This includes educating your banker about your industry, your competition, and the metrics whereby people in your industry measure successful operations. Then,

  2. Show your banker your financial situation and operational history; this involves the language of business. Show him or her your Balance Sheets, Income Statements, tax returns, and possibly Cash Flow Statements, and other ancillary information such as % of delinquent accounts, inventory turnover levels, employee productivity figures, etc.

  3. In your discussion(s) advise your banker of anticipated credit needs and ask for input and his or her advice and opinions. An experienced banker will have been exposed to many scenarios, both good and bad, and will be in a position to offer insights that will be helpful to you.

Traditionally banking relationships have been based on “The three C’s of Credit,” those being Character, Collateral, and Capacity (Cash Flow), in that order. Because of computerization and increased bank supervisory regulations, the order has changed over time to Capacity, Collateral, and Character; but all three elements must nevertheless be in place. It is of utmost importance that you be able to have good records that accurately reflect your past and present financial positions, along with future projections. Remember, many eyes will be perusing your financial information, not just your banker’s. Your banker will be your friend, but you must equip him or her to best assist you.

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