Despite the economy, the weather, your horoscope, black cats, and what ever other excuses exist, banks are still lending money.
In fact, you can get lots of cash out from your friendly banker.
Bankers lend on cash flow, management skill (management creates cash flow, by the way) and your personal credit and status.
Banks rent money. They want it back, with interest. You need to show them that you can pay it all back and use it wisely to grow your business.
You need a plan that shows them how you are going to increase your revenues, profits and cash flow with their help.
A brief business plan showing that you know how you make money, how you compete and are differentiated from others, who your customers are, what your operational capacity and costs are, how you attract customers, what your financial resources are, and what your risks are and what you are doing about them will inspire confidence in your banker.
Financial projections that show your projected income statement, balance sheet (bankers lend from key ratios on your balance sheet) and cash flow statement (shows the ins and outs of cash) will give your banker the information to understand your situation, assess your management skill, and make a lending decision.
Putting this information in a binder, with a table of contents and tabs, samples of your marketing collateral, estimates for your funding requirements, testimonials, an organizational chart and a few other nuggets unique to you will put you at the top of the banker’s pile of applications which range from hand-written plans and numbers to professionally prepared financing packages complete with long-term strategies and detailed covenant calculations.
It’s important to match the financing to the type of asset being purchased or use of the cash. Financing your inventory and receivables should be done with an operating line of credit that may be margined against those assets. Equipment should be financed with term debt to match the useful life of the asset. There are many creative financing structures available including leasing that can minimize your debt, subordinated debt that can act like equity on your balance sheet, or even having customers invest in your business in preferred shares.
Don’t focus on the interest rate. Money is really cheap these days. There are other things that are more important than the rate.
Focus on the banker’s interest in you and your business, the relationship, service and responsiveness, and long-term partnership potential.
Here are some bad ideas that bankers don’t like to finance:
- Borrowing to pay last year’s taxes isn’t a good plan.
- Blaming the tax man for your problems.
- Blaming the last banker for your problems.
- Blaming the economy, the weather, or your business partner for your problems.
- Well, you get the idea.
When you have your binder prepared, send it to a few bankers. Competition is very healthy and you will usually get a better deal.
Borrowing money can turbo-charge your growth and accelerate your profits. Higher profits create higher valuations and can increase your wealth.
The keys to a happy banker are treating them like a valuable partner, providing information and requesting assistance before you need it, and asking for their input.
If you think and act like a big business, you will soon become one!
Copyright 2010. All Rights Reserved. Phil Symchych