Sometimes trying to get a loan to smooth out your cash flow feels like an interrogation when you aren’t prepared to handle the questions posed by your banker.
I’ve covered a typical, unprepared business owner’s trip to their bank to initiate a discussion on getting a loan in our first post in this series. Now I want to share the banker’s perspective on lending money.
Your banker is making an investment in your business.
When you first started your business what did you do before you opened your doors for business? I’m guessing you did the following, among other things:
- Financial analysis – Conducted an analysis to determine if you could make money.
- Profitability – If you could make money, then you determined if you could support yourself and maybe a family.
- Growth – If it was possible, an outside chance at least, you decided if you could make a lot of money.
- Market – Checked out the perceived competition and overall market conditions and determined you could effectively compete.
After the analysis, you started to formulate a plan to make it happen. So how long was it from the beginning to your opening day? Is the time measured in minutes, hours, days, weeks, months or years?
So now you want the bank to invest in your business by lending you money? You did your analysis don’t you think the bank deserves to do some analysis as well? Remember, banks make money on loans that are repaid with interest. And, as a side note, the bank also wants to find out what other services they can offer your business so their income is not solely dependent on loans they make. In other words, they want to diversify their investment.
The two things every bank does
Banks make money by lending money and providing other financial services. So why do they ask so many questions when you want to borrow money? Let’s sum-up a banker’s point of view in two ways.
- First – how much money did they make off the account this past year?
- Second – how much money can they make this coming year if services are added or existing services are expanded?
Banks offer a lot of financial services – checking, saving, account reconciliation, fraud prevention, credit card processing and making loans to businesses. All of these activities provide income to the bank. That’s the real reason for all the questions when you first approach them about a business loan. They are trying to also figure out what other services they can provide the business in addition to a loan. If the only way they are making money is from the loan, then they want to protect that revenue stream.
You should be doing the exact same thing with your customers at least once a year. If you’re not doing this, see my other blog posts about SWOT .
This hopefully gives you a little perspective on why all the questions but also the blueprint to prepare before even meeting with your banker.
See my other posts in this series:
- Does “Despicable Me” Describe Your Banker?
- Preparing the Bank to Help Your Business Finances
- Bankers Need Constant Care and Feeding
I Bring Financial Knowledge, Provide Financial Training and GenerateFinancial Stability
I am fluent in “financialspeak” and can translate your monthly numbers into strategies for future success. I take companies to a higher level of success
Email : AndyAnderson@b2bcfo.com. Phone: 909-732-4917
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