Think Like a Banker… Obtain That Loan!

Robert A. Woods

While there are numerous financing choices for small and medium-sized
owner managed business, ranging from asset based financing to factoring,
most company owners are going to see their local banks first.

The secret to dealing successfully with banks is to understand their
thinking. Busi- ness owners and bankers are natural opponents. They are
at opposite ends of the risk – reward continuum. Own- ers are flush with
dreams of growth and future riches. Owners just “know” they will be
successful, current circumstances notwithstanding. Bankers are
professional balloon busters. For them the glass is not half full, it is
half empty and likely to go down even further.

A business loan is a risky type of loan for the bank. While the owner’s
upside to a loan may be a surge in revenue and profit, the bank’s upside
is getting their money back plus a little interest. Business owners who
look at things from the bank’s perspective are better prepared to make a
solid loan proposal.

Have you ever thought of why you never get a chance to meet with the
loan committee? No, it’s not because they are too busy. It’s because the
bank doesn’t want non-financial issues like people, personalities and
your persuasiveness to cloud the bank’s judgment. Your financial
information has to stand alone. Bankers judge you on your financial
performance. Period.

No matter what bankers may say, the first thing bankers look at is the
annual profit shown on your financial statements. This is the benchmark
of your success in their mind. Get your profit as high as you can before
you meet with the bank. Recast your earnings to show the bank your
maximum earning power. Bankers understand that loans have to be repaid
with cash generated from profitable operations.

Bankers want to see specifically what you are going to do with
additional funds. Show the bank exactly how you are going to use their
money. Explain how you are going to use their money to make more money.
Demon- strate to the bank why your use of their money makes good
business sense.

Bankers like to loan money when they are convinced your use of their
cash will generate more cash for you. Unless you can demonstrate that
these borrowed funds will ultimately sow the seeds of additional funds
in the form of company profit don’t bother your banker with a loan
request. HBM

Robert Woods is Chairman of Woods Capital Corporation in Park City,
Utah. Woods Capital specializes in helping owners of small and medium
size businesses nationwide obtain financing for their companies. Mr.
Woods may be reached at 801-645-8595; mailing address Robert A. Woods,
P.O. Box 1226, Park City, Utah 84060-1226; or e-mail

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