FIND A BANK

Doing business with the wrong bank can mean disaster.

Check them out first.  They are going to check you out for sure. 

 

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CHOOSING THE BANKER

FIND A BANK

(c) 2007-Joel D. Johnson,

After your business plan is complete; you have verified all the numbers; gathered and completed all the financial documentation; you have confidence in your ability to work the plan; you have obtained the necessary experience and knowledge and you are ready to seek financing; you will want to start shopping banks.  Understanding, of course, that all banks are NOT the same and that you must find a match that you and your new company will feel comfortable dealing with.

Here are some of the things your lending institutions may not want you to know:

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Some lending institutions do not want to make startup loans.

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Depending on the size of your loan request, some may not be able to accommodate your loan or they may ask another lending organization to joint ventures.

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Big is not always the best.  Some of the larger lending institutions prefer larger loans to well established businesses.

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Small is not always the best.  Some of the smaller banks are not large enough to make big loans.

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Depending on the size of your loan requirements, your bank may want to take your loan request to the Small Business Administration for their loan guarantee, especially if they are certified or preferred SBA lenders.

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Some lending institutions may  want you to have a backup income or assign savings as addition methods to service the debt, in case you don't make it in your new business venture.  Providing this information will go a long way in helping to get your loan approved, but you must have documentation to prove the income or savings.

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While they may not tell you, in the beginning, and some may even deny it, most will want you to put up 10% to 50% equity injection in your project. This will, of course, depend on the credit score and type of equity involved.

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Lending institutions are in the business of renting money for a profit.  In reality, their business is no different from yours.  Just as you will need to sell your products or services in order to earn a profit, they must rent money and provide other services to earn a profit. Banks want your business.

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Lending officers are actually sales people and a protector of the banks assets.  They are responsible to a boss and a board of directors. They loan other peoples money.

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Most lending institutions use a credit scoring process to determine whether or not your request will be approved. 

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Some lenders may sell your loan to another provider.  

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Above normal interest rates is a good indicator of the institutions lack of confidence in you or your idea or may also indicate a less than favorable credit history.  Higher than normal interest charges can also mean the banker is trying to test your knowledge and or willingness to pay higher rates.  Protest the higher than normal interest rate and you may receive a lower rate.  If the rates are clearly out of reach, take your business elsewhere. 

What to look for:

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Lending institutions who advertise frequently that they are small business and new startup business lenders.

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Some credit unions DO NOT make commercial business loans, as of this writing.

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Preferred SBA lenders.  You can obtain a 70% bank loan guarantee from SBA if you qualify.  These lenders are usually the ones interested in making small business loans.

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Look at the names of the people serving on the board of directors.  This is a good indicator of the type loans there lending institution makes.  If there are a lot of small business owners on the board, your chances may be better.

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The type of customer the lending institutions serves as a whole.  Is their customer base made up of mostly big corporations.  If so, you may have a challenge getting approved, unless, of course you are a large corporation.

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Is the lending institution locally owned and operated or will your loan request have to be approved by someone in New York or some other far off place.

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Do the bank officers have local control of the lending process.

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Find a banker you know or someone you have something in common with.  Common ground helps in getting your loan request reviewed.

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What is the banks reputation among businesses in your area?  Are they highly conservative, afraid of risks and need additional approval from higher ups.  You will want to develop a one-on-one relationship with the individual banker, not necessarily the entire board of directors. 

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Ask small business people in your community, that you know, what their experience with their banker has been.  Ask them to refer you to their banker if you feel their institution fits your needs.  Bankers who receive loan referrals from good customers give those loan request priority.

There are several good books available on how to negotiate a loan with lending institutions.  If you are not familiar with how to negotiate a loan, it would be advisable to obtain a book or two and make use of the information.

He who fails to plan is planning to fail. 

Please refer to other links on this site for additional information and guidance. You may also contact us with your questions at 

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