Small Change

Getting a loan is sometimes harder than you think.
The company: International Musical Suppliers Inc.
Owner: Lisa Argiris
Founded: 1986
1997 sales: $3.5 million
1998 projections: $4 million
Loan specs: $1.5 million from Citibank

So you've got everything going for you: a strong track record, excellent management skills, a compelling business plan, and concrete goals for the future. Securing a loan-even from a bank known for being conservative-should be a piece of cake, right? Not exactly.

As Lisa Argiris learned when her original lender was unwilling to supply the additional capital she needed to start her Chicago-based mail order musical instruments company, banks don't always share your confidence in your business. Argiris contacted 10 banks during her search for a loan earlier this year, but despite her company's impeccable credentials, she had trouble finding a financial institution willing to approve a loan on her terms.

"All the banks were interested in me," says Argiris, 34, but the sticking point was the structure of the deal. "The banks were astonishingly poor at offering me what I needed and were looking instead at what they were comfortable doing." Some banks considered the amount requested too steep; others refused to offer competitive interest rates. But instead of settling for less, Argiris held out for more.

Good thinking. In the end, her company's assets and profitability impressed Citibank-she got everything she wanted from her inventory, mortgage and working capital loan. But the final deal came only after 16 weeks of searching.

What was the problem? For one, Argiris says banks have "cookie cutter" mentalities; most she approached use narrow formulas like debt-to-equity ratios to screen applicants, showing little interest in what her business really provided, its growth potential and its actual funding needs. Second, her company needed a lot of initial capital to produce income.

Argiris learned a lot from the experience. She recommends having a clear understanding of your needs before approaching a loan officer. "If you don't understand that," she says, "you might be persuaded to do things that aren't in your best interest but are in the interest of the bank, which can be devastating to your business."

This article was originally published in the September 1998 print edition of Entrepreneur with the headline: Small Change.