Know Your Banker!
In my book, I devoted an entire chapter to
banking relationships. When I started out in business, with
one employee in a 10' x 20' portable building, which was financed,
I quickly learned that I would have to use someone else's money
to grow my business (since I didn't have any). I learned quickly
how to manage my credit and how to survive with minimum cash
flows. There is nothing philosophical about this; it is just
plain old bootstrapping. Here are highlights and tips from the
chapter on banking.
Managing your credit
•Make sure you don't allow inquiries into your credit
file unless they're absolutely justified. Many vendors will
routinely do these; they lower your credit score.
•Find a community bank where you can have a true relationship.
I don't care what the advertisements say; the large national
chains can't accommodate you unless you are extremely small
(needing less than $100k for cars, land and equip), or very
large (needing over $3m). You need a lender that wants to understand
more than your credit score.
•Obtain and review your credit report ASAP, and subscribe
to a credit watch service. I was recently a victim of attempted
identity theft, and, without a watch service, I could have been
in big trouble.
Planning for and communicating with the bank
•I know it's hard to do a monthly business plan for the
next year or two, but you need such a plan to help you be successful
and have something to execute against. Preparing such a plan
will help you think about the fundamentals of the business.
It's ok to present the banker with a less aggressive plan. Always
present the bank with a plan you can exceed, regardless of what
you use internally.
•Make sure you talk regularly with your banker, if only
for a minute. Don't wait until you need a loan to contact your
officer. If your banker isn't taking you to lunch twice annually,
find another banker.
•Don't be too aggressive on interest rates. Someday you
will be gold plated, but then they can't make money on you.
I always said that I wanted the banker to say, "He's one
of our best customers, and we make good money on his business."
Always have a backup plan, and, when possible, maintain two
banking relationships. The bankers will push back slightly,
but it keeps them on their toes and assures that they won't
take you for granted.
I have helped quite a few recyclers with SBA loans and was one
of the first to be able to explain inventory valuation and cost-of-goods
issues well enough for a banker to understand and be comfortable
with them. This allowed me to borrow using my inventory for
collateral. You must learn these issues and be able to talk
about them to gain the confidence of your banker. Don't forget,
however, that you must have adequate earnings. Just getting
a loan won't "save" your business. Refer to my article
a few months ago: "But Ron, all I need is money."
Next month: More good stuff from Chapter 4.
Remember, only you can make BUSINESS GREAT! Please e-mail
Ron if you would like previous articles.
You can learn more about Ron Sturgeon at rdsinvestments.com
— click on "more about Ron Sturgeon".) He can
be reached at 5940 Eden, Haltom City, TX 76117.
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