If there's a list out there of entrepreneurial frustrations,
selecting the right bank is somewhere near the top. For good
reason, too: Not all banks make it a point to reach out to small
businesses. So where do you look, and what do you look for? Try
these eight secrets to success:
1. Meet the commercial lenders or relationship managers you
might be working with. Large banks are often divided into two
sectors: commercial banking and retail banking. Retail banking
usually focuses on personal accounts. Commercial banking is often
segmented into three parts: small business (less than $3 million in
sales), midmarket ($3 million to $20 million in sales) and large
business (more than $20 million in sales). Occasionally, large
banks will attach their small-business lending unit to the retail
banking division. The point? Find out which bank department best
fits your company's needs. Then you're ready to meet with
the right people.
2.
Find out if the bank classifies your industry as undesirable.
This isn't common knowledge among a bank's staff.
You'll have to get it directly from the small-business banker.
He or she may feel uncomfortable with the subject matter, so make
it easy by saying something like, "In your bank's loan
policy manual, in the section titled 'Undesirable Loans,'
is my industry listed?"
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3. The bank must understand your industry-no exceptions.
Every industry has certain characteristics not commonly understood.
When bankers don't understand how an industry operates, they
don't understand how they'll be repaid. And when bankers
don't understand how they'll be repaid, they decline loan
requests.
4. Make sure the bank is small enough. Only then will a
banker take time to spell out the requirements. You should be able
to ask questions-and get answers-about loan-to-cost, cash-coverage
ratios, how they calculate the debt-to-income ratio of
entrepreneurs and more.
5. Determine if the bank is large enough to accommodate your
needs. Every bank has a legal lending limit based on its
equity. So a bank with less than $100 million in assets may not be
able to accommodate a small manufacturer with $5 million to $10
million in sales.
6. Make sure loan requests for your business are underwritten
locally. Here's why: Let's say a business in
Jacksonville, Florida, delivers its loan application to the local
branch. Several days later, it receives a letter of decline in the
mail. When the business owner later questions the branch manager,
he or she learns that all small-business loans are actually
processed in Tampa, Florida, and that there's no one there to
answer questions.
7. The bank must be looking for smaller customers. These
days, a growing number of niche banks aim to deal exclusively with
small businesses. It also helps to ask around and find out which
banks other entrepreneurs are using.
8. Start with the bank that handles your deposits. But if
it turns out not to be friendly to your business's needs,
it's time to move on to one that is.
Wallace Weeks is founder and president of The Weeks Group
Inc., a small-business strategy consulting firm in Melbourne,
Florida..
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