Lender Can Be an Ally With a Little Effort

Picture this: You run a promising business--say, a small or mid-size factory making after-market auto parts or some other product for an established “old-economy” market. Your customers like your products, and you see good prospects for your business if you can ramp up your growth. You need capital, and you think your best shot is to get a bank loan.

The phone rings one morning as you sit pondering your strategy. A banker whose name you don’t recognize wants to meet with you to discuss your loan needs. You hesitate, then decline. Then you ask yourself, “Why did I say no? Why did I refuse to see someone who might help me get where I want to go?”

Unfortunately, if you’re like the owners of many growing businesses, this scenario is not unfamiliar. It illustrates important truths about the relationship between business owners and lenders: They need each other, and they have a hard time making contact.

In fact, many a business owner would rather go to the dentist than sit down to talk with a lender about a loan, and the result is that their companies don’t get the financing they need to grow and prosper. Many a frustrated banker, meanwhile, goes home in the evening fighting the temptation to try selling shoes for a living.

Active Management

The remedy is at once simple and complex. If you need help from a smart lender to capitalize on your opportunities, the best way to get it is to manage the relationship with your lender, and with the lending institution, just as you manage your relationships with other people whose help you need--your customers and suppliers, your employees, lawyer, accountant, even your insurance broker.

How? You make sure you’re in charge. Your banker can prove to be your ally, but only if you take the lead in establishing and maintaining a solid and mutually profitable relationship. This means that you must learn how banks operate--and then play by the rules. You must also understand your own needs along with your strengths and weaknesses, and match them carefully with those of your lender and the institution.

The good news is that you begin with a big advantage. There are a lot of lenders out there, and they want to do business with you. In fact, today there are more lenders on the street calling on business owners than ever before, and they have more to offer the small and mid-size businesses--more loans to meet specific needs, along with more and better consulting services of a wide variety, many of them not widely known to business owners.

What You Can Expect

For example, smart bankers can help you find the kind of legal and accounting help you need to expand your operations. They can help you navigate the financial and even some of the tactical complications inherent in manufacturing goods overseas. They can help you manage cash flow--a simple idea only in theory, never in practice. They can put you in touch with outside sources of equity capital, including hard-to-find private equity groups specializing in leveraging the growth of companies like yours. They can guide you to people who will take your company public or merge it into another. They can even help you sell your business to your managers and employees through an Employee Stock Ownership Plan or, if yours is a family business, transfer it to the second generation.

That kind of advice is worth money, and the truth of the matter is that most business owners, even those who run disciplined, promising growth companies, don’t receive it--most often because they don’t know how to ask for it.

So stay tuned. In the coming weeks, readers of this column will find an extended discussion of the subject, detailing what bankers want, what they offer in return and what it means to establish and maintain a relationship with a bank or non-bank lender that will prove fruitful to the business.

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Next: The “Seven Cs” of credit.

Juan Hovey can be reached at (805) 492-7909 or at [email protected].