Why SMB's Choose the Wrong Banks

Updated: March 19, 2011

When you chose your bank, did you talk with a mid-tier or middle-market lender? Did you start a real relationship with the bank prior to getting and opening your commercial checking account? You do know you're not locked into the bank, and that you can have several banks?

If not, you may be in store for an unwelcome surprise - the bank isn't going to give you that Line of Credit (LOC) you so desperately need or they "give" you the LOC, but make it impossible to draw down on the funds.

Having a relationship with the local branch lending officer is almost useless, except for fixing some local issues. They have limited authority in granting loans and as soon as your business grows past the $1-$2M range, they can't touch you. Your account moves to the middle-market group.

So why did you waste your time befriending them when they aren't really going to be able to help? You need to find and cultivate that middle-market lending officer. Repeat after me (as in mantra) "find the middle-market lending officer".

After finding this person, you need to talk turkey right off the bat, and save the "I want to be friends" until you find that the bank can be of assistance. Straight and forward is best, because if you hype too much, and the due-diligence comes back negative, well you've over-sold and will lose this bank.

At your initial meeting you need to ask some of the following questions (in no particular order) and be able to provide some of the following documentation:

  • Q: Does the bank write lines for businesses in my industry segment?
  • Q: What types of lines do they write (Asset based lending, general LOC)?
  • Q: What type of lines do you think I can qualify for?
  • Q: Walk me through exactly what the requirements are if I were to take down a portion of my LOC.
  • Q: What are the relationship killers for both your bank and the banking industry at large?
  • Q: Do you, Mr/Ms Banker understand my business model? Let's talk about it.
  • Q: How are you going to champion my business?

Documentation:

  • Reviewed Financial Statements for last 3 years (or whatever length of time you've been in business). Audit financials are not necessary if your credit vehicle is generally under $1M - this is not a hard and fast rule.
  • Cash flow statements
  • A/R aging
  • Client demographics (US based vs. Foreign based; for some strange reason international banks don't like foreign based receivables, they say their too hard to collect)
  • Payable aging
  • Other financing
  • Significant orders/contracts in negotiation/Sale Forecasts for next 18 months (also not a hard and fast rule)
  • Sales brochures/web site, etc that explains and promotes your company

If you feel the banker is hedging his/her answers more than someone with that title, position or years in the business should, maybe this isn't the right person. They probably won't give you a "yes", because it still needs to go through underwriting and the other due-diligence requirements of the bank, but someone who's been at that particular bank long enough, and in the banking industry should be able to give you a realistic assumption of your chances.

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