Bankers

If at all possible, do not waste time with the bank flunkies. Try to talk with the senior vice-president or branch manager who will make the decision about whether to give you a loan. When you first approach a bank, ask who makes this decision, then ask to meet with that person. All of the time you spend talking to someone other than the decision-maker is wasted time because a lower-rung person will report to the actual decision-maker, who will then ask you to go through it all over again with them (or worse, they will simply look at the numbers given in the loan application without looking any further). Remember, however, that you need to be diplomatic in asking to speak with the Boss, flunkies do not like to be reminded that they are flunkies. (We say that as a group of flunkies ourselves.)

But regardless of who you talk to, there are some documents that you will have to give to the bank.

1. Letters of reference;
2. Personal and business financial statements;
3. Credit reports;
4. Business plan for the company;
5. Legal documentation (corporate resolutions, articles of incorporation, partnership agreements, etc.); and
6. Doumentation of all other outstanding loans.

Then you can expect the equivalent of a body-cavity strip search of your financial past. The bankers will invariably ask for more information and probe further into whatever information you provide them. So prepare yourself for an exasperating series of questions and requests.

But be reasonable and polite when replying and complying with the requests. Just like you, bankers do not like short-tempered people, and after all, if they give you the money, they are doing you something very much akin to a favor.

Collateral

When asking for money from a bank in any amount above, say, $10,000 (depending on you income and the bank), you are going to have to provide the bank with collateral for the debt. If you have no collateral equal in value to the amount of the loan you seek, you can forget it. It really is that simple in most cases. (This is why so many start-up companies avoid using banks.) Assignable leases, warehouse receipts, trust receipts, chattel mortgages, real estate (including your home), accounts receivable, savings accounts, proceeds from life insurance policies, stocks and bonds, cars, boats, valuable jewelry, or any other asset of value which a bank can sell can be used for collateral.

After the Loan Approval

Now you can expect the bankers to be looking over your shoulder at all times. Do not try to fight it, do not try to enjoy it, just deal with it. And keep in mind that your bankers have the ability to shut you down by calling your loans. After making a loan to a company or business, banks generally keep an eye on the following list of formal and informal factors to gauge how well the lender is doing:

1. Payments made on time;
2. Willingness to provide quarterly financial statements and allow bank personnel to audit company records;
3. Bank balances;
4. Management turnover;
5. Personal finances of owners;
6. Inventory turnover and sales;
7. Availability of owners to meet with bank personnel;
8. Lawsuits involving company;
9. Amounts reported as accounts receivable and accounts payable;
10. Significant business decisions made without bank approval or notification; and
11. Debt to equity ratio.

The only other advice we would give you that your attorney and accountant need to be involved from the start. Also, documents every term of the deal, and commit any and all oral agreements to writing as soon as possible. Other than that, good luck.