"Banks aren't lending money! They only want to lend to people who don't need the money! It takes too long to get an answer, and even longer to get the money!"
If all of the above statements sound familiar to you, I've got good news. The next time you need a loan, you can get what you want, when you want it. As a former bank CEO whose family worked in the waste industry for years, I can assure you that banks in this country are very interested in lending you money today. However, they are even more interested in making sure you can pay them back.
Successfully negotiating with your bank requires three very basic steps:
- Create a strategic plan and a budget.
- Manage your budget and review results monthly.
- Have the right bank partner.
These steps may seem simplistic. However, you would be amazed at the number of business owners and operators who do not follow them. Many small businesses instead employ the "ready, fire, aim" method, which always ends badly.
Creating a realistic strategic plan and budget will not only help you prepare for the future of your company, but also tells your banker that you are managing your business and holding yourself accountable for results. Be honest when you prepare your budget. Bankers are trained to be conservative and will question your ability to service the loan if you present plans that are unattainable or too aggressive.
The goal is to demonstrate that you are a skilled businessperson, that your company is well-managed and that you will have the capacity to repay the loan, even in changing and difficult economic times.
Once you obtain the loan, reviewing your results and finances on a monthly basis is critical. It allows you to compare your results to your budget and strategic plan, and to make any necessary adjustments in a timely manner. You cannot reduce unnecessary expenses or leverage profitable opportunities if you are not reviewing results monthly. For example, I worked with a client a couple of years ago who reduced overtime by roughly $5,000 per month as a result of this suggestion. That was $60,000 in the owner's pocket that would not have been there without a monthly review of the company's results.
Many business owners review their expenses when they are preparing their taxes. If you have a problem in January and do not catch it until the following January, the costs can be extraordinary and dangerous. Another benefit of reviewing your results monthly is it tends to help you get your tax returns done quicker. I have found that my clients who did this typically did not have to file for extensions. Timely completion of your taxes is also an asset in negotiating with your banker. It is difficult for a bank to lend you money when your most recent tax information is more than twelve months old.
My final suggestion is to pick the right banking partner. This means choosing a banker that is willing to take the time to get to know you and your business. I would suggest that your banker cannot know too much about your business. Therefore, get them current financial information as quickly as possible, invite them to visit your business at least once or twice a year and, if possible, invite them to an occasional industry function. The more they know about you and your business, the more likely they are to help you, quickly, in good times and in bad. Bankers hate surprises. Keep them informed.
If you feel your banker is not genuinely interested in or capable of understanding you and your business, find a new banker. However, do not confuse getting a "no" from your banker with a lack of interest. The wrong "yes" from your banker can put you out of business. The right "no" could save your company.
- Financing Hard Times: Waste firms use a variety of methods to finance capital spending in a recession
Bill White is the president and CEO of Anchor Performance Group in Floyd Knobs, Ind.
Want to Know More?
Bill White will speak in further detail on this issue at the "Bank Negotiations: A 'How To'" session at WasteExpo on Monday, May 3. The session, which is part of the Business and Finance Track, will run from 9 a.m. to 10:15 a.m.