Guidelines for making bankers' visits to your company work in your favor when applying for a loan.
A lot of business owners believe that if only they could persuade their banker to visit their company, the decision to lend them money would be a no-brainer. Showing off the operation can indeed cast your business in a favorable light. But as Keith Lawder, a senior vice-president with Wachovia Bank in Atlanta, points out, the banker visit can also cut the other way. "It can help show bankers that a loan is too risky or that it doesn't make sense," says Lawder, a 20-year lending veteran. While different lenders will have different checklists, here are Lawder's guidelines for how to make the visit work in your favor:
Know your assets. Any banker is going to wonder what your assets (including property, equipment, accounts receivable, and inventory) will be worth in a pinch. Moreover, if you have assets the banker can't physically inspect or may not fully understand -- such as proprietary software -- it's in your interest to point them out. "As you walk the lender through your business," says Lawder, "it's always a good idea to identify assets the banker might not think of."
Anticipate safety and environmental concerns. Bankers are more attuned than ever to safety and environmental issues, Lawder says. So sloppily maintained facilities (with oil on the floor or unnecessary clutter) and inadequate precautions are definite turnoffs. "It really tells me something if I'm in a dangerous area and nobody offers me a hard hat and goggles,' he says. And if there's a hint of environmental problems, it's best to define them (and how much proper cleanup would cost) before the banker arrives, Lawder advises. If you don't, lenders will assume the worst.
Explain inefficiencies. Even people who don't know your business will notice production bottlenecks and idle equipment. Bankers, notes Lawder, may wonder if those aren't just the tip of the iceberg of haphazard management. If you know of ways to improve overall efficiency, implement them before the banker arrives. Or at least let the lender know that you recognize the problems and that you're preparing solutions accordingly.
Talk about backup plans. Bankers are looking for assurances that you'll be able to meet your loan payments even when the unexpected happens. What if that important machine breaks down? Will you have to suspend operations? "I like people to tell me where their vulnerability is and what they're doing about it,' Lawder says. If the banker doesn't ask, you could score points by offering the information.
Show off your employees. Most bankers know that it takes a team of dedicated and capable employees to build a successful business. So they'll be looking for information that sheds light on whether employees and managers get along, and if people take pride in what they're doing. Like many visiting bankers, Lawder says, he picks up a great deal by chatting with employees as he tours businesses, and he views it as a negative if CEOs try to restrict his access to workers. "Bankers can learn a lot from employees,' he says.