Paul B. Brown

How to Deal with Your Bankers

 

Also, you have to know how the bank handles service charges. Typically, banks assess a fee for each deposit slip, each individual deposit, and each check you write. "But the charge is either 'hard' -- they take it out of your account -- or 'soft.' If it's soft, you're given a credit based on the amount in your corporate checking account.

"By law, banks can't pay you interest on that money, but they can waive service charges. Some banks figure out what you would have received if they had paid you interest and apply that amount as a credit toward the service charges. If that credit doesn't cover the charges, the balance is deducted from your account. If there is an excess, some banks will roll it over and apply it toward next quarter's service charges."

The Three Pricing Components

1. The risk of the loan. How likely is your company to go belly-up?

2. Labor intensity. How much time will the bank have to spend on your account? Will it have to keep cleaning up your financial statements and calling for more information? The more time you spend on your internal financial statements, the less the loan will cost you.

3. The bank's profit goals. What does it want its margins to be?

LOAN AGREEMENTS (I)

Covenants

"Don't worry too much about the boilerplate," advises Treptow. "If you're clever and polite, you can probably negotiate most of it away. Ask the banker, 'What are you concerned about? What kind of protection do you need?' " Then draft a whole new agreement -- one that eliminates the boilerplate. Most bankers will be receptive to this approach. There's no reason they shouldn't be. They still get the guarantees they need, and you've eliminated any of the mumbo jumbo that might hurt you later on.

If there's one clause in the basic agreement that the banker is unlikely to take out, it's the one dealing with receivables. It's likely to read: If receivables go above X% of assets, or if Y% of all receivables are more than 90 days old, we call the loan.

"That's there for obvious reasons," says Treptow. "When receivables get out of line, it's usually a sign that the business is in trouble." But receivables are within your control. Since you know they will be a sore point, take care of them.

* * *

LOAN AGREEMENTS (II)

Personal Guarantees

Initially, most banks will require personal guarantees. "Usually the bank will cancel personal guarantees if you hit certain earning projections for a specific period of time," says Treptow.

After you and your loan officer have worked out what will be required to eliminate the guarantees, drop the bank a note outlining the arrangement. That will prevent problems later on.

LOAN AGREEMENTS (III)

The Checkup: Statements and Audits

Bankers love clients to send monthly financial statements. They also love annual audits. Both allow them to sleep better at night. But those security blankets can cost you a lot of money.

"I'd offer to send the bank the numbers you use to run your company," says Treptow. "If you're already preparing monthly statements, then it's no big deal. Send them a copy. But if you're only using quarterly numbers, discuss that with the bank. They may consider them sufficient.

"Audits are another matter. They're expensive, easily running $15,000. See if the bank will settle for your accounting firm doing a review instead. A review covers the same subjects as an audit, just not in the same detail and depth."

Start-Up Capital From banks? What, are you kidding? Treptow isn't optimistic about the chances of getting bank funding for a new venture, no matter what you offer as collateral. "You'll increase your chances by stressing relevant experience in your loan application," he says. "Unfortunately, you'll still likely be turned down. It's just a fact of life."

'Give the banks you're considering extra points if they're willing to hold the initial meeting at your office, not theirs. It shows flexibility on their part.'

What to Wear to Your Interview Take that dark blue number -- the one you jokingly refer to as your banker's suit -- out of the closet and put it on. Says Treptow: "If you come in looking like a turkey, they won't be concentrating on what you're saying."

The worst outfit Treptow has ever seen? An electric-blue ensemble worn by an entrepreneur who had on more jewelry than Mr. T. "Every time he moved in his chair, the light refracted off this huge diamond pinkie ring. He didn't get the loan.

"I never held it against an entrepreneur who worked in manufacturing if he came wearing work pants and a work shirt. As long as they were neat and clean, I thought that was fine."

'There's nothing wrong with shopping around, even after you've developed a relationship with a bank. You want to know what else is out there. Don't say to your banker, "I've been talking to your competition, and here's what they've offered." But I'd let him know you think some terms could be improved.'

We Can Work It Out? Ask if the bank has a workout department, full of the folks in charge of troubled loans. If the bank you're considering has one, it tells you two things. Both negative.

1. Banks with a workout department might be a little quicker to call your loan. The logic? If those guys aren't working on problem loans, why are we paying them?

2. If the loan officer can send a problem to the workout guys, then he has less incentive to help you turn things around himself.

The Bank Will Start to Worry If . . .

1. Receivables start ballooning.

2. It gets lots of phone calls from your creditors, who want to know if you can cover the check you just wrote.

3. Your profits start falling below expectations.

4. You don't return their calls.

Business Plan Checklist

* Neatness counts. "If your business plan is sloppy, the implicit impression will be you're sloppy in running your business," says Treptow.

* Don't send a badly Xeroxed copy. "People will think you ran off 100 copies to send to 100 different banks. That isn't going to help your chances."

* Unique isn't necessary. "We had one guy handwrite his plan on the back of a roll of shiny shelving paper. He got noticed, but it didn't help."

* Bankers want balance sheets. "Apparently the word is out that bankers don't want to see balance sheets with the plan. In the past few years, 75% of the plans we got didn't have them. We want them."

* Tailor the plan to hit the bank's hot buttons. If, for example, during your initial conversations with the bank you find out it's fanatical about keeping receivables in line, throw in a paragraph or two about how you handle collections.

Be Nice to the Little People More than one entrepreneur has lessened his chances of getting a loan by being rude to Treptow's secretary or his support staff. "If they were unpleasant, abrupt, or just downright nasty, I was predisposed not to like them," he says. "If you're known to be 'difficult,' you're going to be dumped on the meanest SOB in the bank, or someone too green to know better, if your loan officer leaves."

'Most banks put on seminars. Go to them. The bank's management most likely will be there, and you get another chance to meet them and, more important, for them to meet you.'You'll Know the Bank Is Worried If . . .

1. Your banker won't take your calls.

2. When you do get through, he's evasive; he doesn't want to talk about your account.

3. Your calls get referred to someone you've never met.

-- by Paul B. Brown

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