Making The Cut
If there's a list out there of entrepreneurial frustrations, selecting the right bank is somewhere near the top. For good reason, too: Not all banks make it a point to reach out to small businesses. So where do you look, and what do you look for? Try these eight secrets to success:
1. Meet the commercial lenders or relationship managers you might be working with. Large banks are often divided into two sectors: commercial banking and retail banking. Retail banking usually focuses on personal accounts. Commercial banking is often segmented into three parts: small business (less than $3 million in sales), midmarket ($3 million to $20 million in sales) and large business (more than $20 million in sales). Occasionally, large banks will attach their small-business lending unit to the retail banking division. The point? Find out which bank department best fits your company's needs. Then you're ready to meet with the right people.
2. Find out if the bank classifies your industry as undesirable. This isn't common knowledge among a bank's staff. You'll have to get it directly from the small-business banker. He or she may feel uncomfortable with the subject matter, so make it easy by saying something like, "In your bank's loan policy manual, in the section titled 'Undesirable Loans,' is my industry listed?"
3. The bank must understand your industry-no exceptions. Every industry has certain characteristics not commonly understood. When bankers don't understand how an industry operates, they don't understand how they'll be repaid. And when bankers don't understand how they'll be repaid, they decline loan requests.
4. Make sure the bank is small enough. Only then will a banker take time to spell out the requirements. You should be able to ask questions-and get answers-about loan-to-cost, cash-coverage ratios, how they calculate the debt-to-income ratio of entrepreneurs and more.
5. Determine if the bank is large enough to accommodate your needs. Every bank has a legal lending limit based on its equity. So a bank with less than $100 million in assets may not be able to accommodate a small manufacturer with $5 million to $10 million in sales.
6. Make sure loan requests for your business are underwritten locally. Here's why: Let's say a business in Jacksonville, Florida, delivers its loan application to the local branch. Several days later, it receives a letter of decline in the mail. When the business owner later questions the branch manager, he or she learns that all small-business loans are actually processed in Tampa, Florida, and that there's no one there to answer questions.
7. The bank must be looking for smaller customers. These days, a growing number of niche banks aim to deal exclusively with small businesses. It also helps to ask around and find out which banks other entrepreneurs are using.
8. Start with the bank that handles your deposits. But if it turns out not to be friendly to your business's needs, it's time to move on to one that is.
Wallace Weeks is founder and president of The Weeks Group Inc., a small-business strategy consulting firm in Melbourne, Florida..
- SBA Office of Advocacy, (202) 205-6941, www.sba.gov/advo/stats/lending/1999/micro99.pdf.