How to Deal with Your Bankers

When I was growing up on a farm in Wisconsin, I couldn't imagine why anyone would want to be a banker," says Dean A. Treptow. "Bankers were condescending people who crushed my family's friends by turning them down for loans."

But Treptow, now 51, did become a banker, albeit an unusual one. For one thing, he's never taken an accounting or finance course. For another, he -- unlike many of his colleagues in pinstripes -- enjoyed dealing with small, growing companies. "When I was a branch manager for First Wisconsin National Bank, the state's largest bank, the phone company was one of my accounts. How much satisfaction do you think there is negotiating over the number of mills you can shave off each transaction charge? With small companies, you can make a difference. You can help them grow." Treptow took that attitude with him to tiny ($14 million in assets) Brown Deer Bank in a suburb of Milwaukee when he was hired as president in 1973. By concentrating on lending to small and midsize companies, he increased business eightfold by the time First Bank Systems acquired Brown Deer in 1988.

Today Treptow is chairman of Polaris Group Inc., a Milwaukee-based investment firm, so he deals with banks as a client. Having sat on both sides of the desk, he's happy to share some of his thoughts about the care and feeding of bankers.

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You always shop around for the best suppliers. Well, finding a bank is no different. Banks, after all, are just another supplier -- of money. After your friends, attorney, and accountant have given you a list of potential banks, Treptow suggests, play the "Match Game." Ask each of your would-be bankers:

1. Do you understand my business? If your banker does, you won't have to spend a lot of time educating him about your market or the problems you'll likely face.

2. Do you like people like me? A sure tipoff: look at the bank's board of directors. Are there any owner-managers on the board, or are they all captains of industry?

3. Who am I going to be dealing with? A junior person who runs messages between the loan committee and me? Or someone authorized to make his own decisions?

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HOW MUCH MONEY?

Enough Is Enough

If you need a $750,000 loan, ask for a $750,000 loan. "The most consistent mistake entrepreneurs make is not asking for enough money," says Treptow. "If they know they need $750,000, they do the most optimistic projections they can, and then ask for $500,000, because they're afraid of being turned down. Then six months later they have to ask for another $250,000. The lending officer is surprised you couldn't meet projections, and you become suspect in the bank's eyes." Ask for what you need and don't compromise, says Treptow. "If you apply for $750,000 and the bank only offers $600,000, go somewhere else."

CHOOSING A LOAN OFFICER

You Want a Meaningful Relationship

Having narrowed your list down to two banks, make your decision based on who your loan officer will be. You aren't entering into a relationship with First National City State Federal County Bank. You're going to be dealing with Laurie, the loan officer. Before you sign up, you want to know everything about her you possibly can.

How old is she and what's her background? If Laurie is 51 and a veteran of the mortgage department, you lose on two grounds, says Treptow. Her age and background tell you she has spent most of her working life in banks when they were heavily regulated. Odds are she's not going to be overly flexible. And her mortgage background means she's used to making loans based on strict formulas. Laurie may be a lovely person, but she's probably not for you.

Also, how much authority does Laurie have? Can she approve loans for $500,000 or does she need somebody else's OK if the loan is more than $32.50? "It doesn't do you any good to deal with someone who really believes in you, if they're green and aren't allowed to make decisions," says Treptow.

If Laurie won't tell you where she stands in the bank hierarchy, or if she's evasive, "she's given you all the information you need to know she's not the person for you."

Get to Know the Boss Even assuming Laurie the loan officer is the right person, get to know her boss. "Meeting as many officials as you can will help you modestly in your initial loan request," says Treptow. "But it will help enormously later on if you have a problem. If they know you, the people empowered to call the loan are likely to treat your blunder as an isolated instance, one strikeout from a real good hitter. If they don't know you, they won't be as sympathetic."

To meet the higher-ups, ask Laurie to invite them along when you give her your plant tour. "Or when you go to the bank to make a presentation, say, for an expansion loan," says Treptow, "tell the senior officers you'd like to hear their reactions to your plan in case you have overlooked something." Flattery never hurts.

CREDIT RATING

How the Bank Grades You

Whether you get your loan will depend to a large extend on how well the bank's computer likes you. All banks use credit-scoring software programs that analyze your past performance, examine your balance sheet and profit-and-loss statement, and project your future.

To better your chances, says Treptow, find out what software the bank uses. Buy it, plug in your numbers, and see where you might be vulnerable.

If the bank won't tell you which program it uses, Treptow advises going down to your local software store and buying any of the six or so bank scoring programs their likely to have in stock. They all cover the basics. He isn't counseling fraud here: you don't want to lie or conceal problems. But within generally accepted accounting practices, there are often two ways to record a transaction. Why not use the one most favorable to you?

Here's an example. Start-up owners will frequently give up a paycheck or two, or loan the company money to keep it going. That loan can be recorded as debt, of course, "but it's really equity," says Treptow. "Why not move it into the capital section? That more accurately describes what's gong on -- and it cleans up the company's balance sheet at the same time.

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BANK SOLVENCY

How to Grade Your Bank

Get ahold of the bank's financials. You're not likely to suffer directly if your bank fails, but if the bank runs into trouble or is taken over and cost-cutting measures are imposed, you'd rather not deal with bank officers who are worried about losing their jobs.

There are a couple of ratios you should pay close attention to as you go through the bank's numbers. "If the capital-to-asset ratio is less than 6%, it doesn't necessarily mean the bank is unsound, but it will be getting a lot of pressure from regulators who will want it to be more cautious," advises Treptow. "Similarly, if aftertax earnings are less than 1% of assets, there is likely to be pressure from either the regulators or the bank's board to be conservative." In either case, you might be better off going with another bank.

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PRICING SERVICES

All Right Already, What's It Going to Cost?

Not so fast. You can't figure the true cost of your loan until you do all the arithmetic. For example, there's the matter of compensating balances.

"A $1-million loan at 2 ½ points over prime can be better than the same loan at 1 ½ points over," says Treptow. "But that can be hard for entrepreneurs to understand. To get the loan at 1 ½ points over prime the borrower might have to maintain a 15% compensating balance. That means in order to get the loan, you must keep $150,000 [15% of the loan] in an noninterest-bearing account." If you invested that $150,000 at 8% simple interest, you could make $12,000 a year on that money.