Whether it’s to start a new business, purchase equipment or buy a piece of real estate, developing a relationship with a lender or banker is of utmost importance.
Although things are not “like the good old days” when a person could secure a loan by a simple hand shake, lenders still have some ability to maneuver and fight for their customers.
So how does one develop that relationship and make a lasting impression?
First, we must understand the environment in which bankers and banks are operating. Financial institutions have, whether justified or not, experienced a tremendous amount of change during this economic cycle.
The bursting of the real estate bubble and increased financial reform have forever altered the industry’s revenue streams and operating guidelines. As a result, bankers, like you, have to adjust the new “normal” as well.
Patience and understanding during the loan process will increase your credibility. Also, know that banks are no different than repair shops or retail stores. Find one that you have a connection with or that you are comfortable with.
Second, if you are a relatively new business, which includes anyone that has been in existence for two and a half years or less, your credit score is vitally important.
Unlike established businesses, your company has no history or trends to aid bankers in determining your creditworthiness. The credit score is a major factor in determining character in the initial phase.
Therefore, if possible, determine what the minimum credit score cutoffs are for your particular bank. These scores can help you determine whether it is the appropriate time to approach the banker for funding.
Third, don’t assume bankers know everything about every industry. Although bankers do have an eclectic customer base, their experience with your specific industry might be minimal.
Bankers are not required to be industry experts when providing funding, but it is advantageous for them to have a general understanding of the industry and specifically your business.
This understanding might come through providing the company’s financial statements and a general knowledge of the key measurements in the business such as food or labor costs. Again, this process will build your credibility with the lender and increase their knowledge base concerning your industry.
Fourth, have your “wish list” in hand both in items to be purchased and amount needed.
Knowing exactly what you need demonstrates to the banker that you are serious about the project and have completed your due diligence.
Finally, as you have learned about the banker’s environment, determined their credit score criteria, gathered your company and industry information and tallied your funding needs, you are ready to schedule a meeting or introduction.
Remember, our first impression can be our last impression. These action items can’t guarantee success when applying for funding, but they will help you build and develop a credible relationship with your banker.
Todd Carlisle is a business consultant with the Columbus office of the Georgia SBDC Network. He may be reached at firstname.lastname@example.org.