Multi-Unit Franchisee Magazine Issue II, 2011 | Page 86

Finance
By steve LeFever

understanding Bankers
Basic rules to boost your odds of getting a loan

B

ack in 1981, with the prime borrowing rate at an
all-time high of 21 percent, most bank customers felt that
those cameras they have in banks to photograph robbers
should, in all fairness, be pointed at the “real” crooks: the lending officers. At such rates most companies found it difficult (if
not impossible) to borrow money. Actually, it wasn’t so hard to
borrow money—it’s just that no one could repay it.
Those days of exorbitant interest rates are gone now, at least
for the time being. In fact, interest rates are at all-time lows.
However, the problems of finding capital and repaying loans
remain, and many business owners have feelings of animosity
and bitterness toward banks and bankers as a result of their bad
experiences. For just a moment, let’s redefine
the Golden Rule: Those who have the gold,
make the rules.

Woolly Mammoths Gone? puts it this way: “I’ve often thought if I
could collect all the nation’s bankers in a big gunny sack out in
the middle of the ocean, that I would jump overboard with the
sack and sacrifice myself just to rid the world of them.”
Know thy banker
It doesn’t need to be that way. Let us share some thoughts from
the perspective of someone who’s been both a banker and a business owner. Since it usually aids in understanding to view any
situation through the other person’s eyes, let’s examine where
your banker is coming from.
The best way for banks (and bankers) to be successful is to lend
money to businesses that pay them back. But
80 percent of all businesses fail. So bankers
tend to be very cautious because they have a
4 out of 5 chance of guessing wrong—and
that 80 percent statistic was in good times.
To make matters worse, most business
owners don’t understand leverage or why
more debt equals more risk… and they tend
to overstate their optimism and understate
their need for capital… and they’re usually
undercapitalized and overextended… and
they rarely have accurate, timely information. But they do have an almost religious
belief that things will be all right if they can
just get the funds they need to “get over the
hump.” (Sound familiar?)
Of course, borrowing is a two-way street.
It’s not just a case of business owners needing
bankers; bankers need their business customers just as much. For banks, their deposits are
liabilities (as in “demand deposit” accounts).
Banks don’t make any money until they make
a loan. Find a banker who’s never made a
bad loan and we’ll show you a bad banker.
On the other hand, show us a banker who’s
made too many bad loans and we’ll show
you someone who now has a different career.
(The classic advice story for young bankers
who want to be successful is: “Make good loans.” How do you
know if a loan is good or not? “Experience.” How do you get
experience? “Bad loans.”)
One of the things many bankers also discover is that the way
to get ahead is not by doing good things, but rather by not doing
bad things. Thus, the easiest thing to say is “No.” Bankers can
become skeptics, so it becomes the business owner’s job to give
them a reason to say “Yes.”

the best way
for banks to be
successful is to lend
money to businesses
that pay them back.
But 80 percent of
all businesses fail.
so bankers tend to
be very cautious
because they have a
4 out of 5 chance of
guessing wrong.

How we got here
Let’s also take a look at the recent past. The
economic firestorm of the past three years has
changed the credit landscape going forward.
First, let’s look at the primary components
of the recent financial meltdown: 1) a lax
regulatory environment creating conditions
for abuse, 2) substandard credit policies and
documentation, 3) economic over-optimism,
and 4) borrowers’ lack of financial acumen.
In the bank regulatory arena, lax enforcement has been replaced by an overly restrictive
review process applied in an arbitrary manner
that is actually hindering the recovery. Banks
are scrambling to refocus on credit training
and loan documentation.
Finally, there’s the issue of the lack of financial acumen on the part of business owners and managers. For decades, everyone has
known, and accepted, the classic profile: Most
business owners know how to make it and
sell it, while the financial side of the business
remains somewhat of a mystery. This folklore profile will no longer cut it in today’s
overzealous documentation environment. Business owners will
be expected to “up their game” with regard to financial acumen
and business performance.
Keep in mind that borrowing and lending represent two sides
of the same coin. No business relationship works out unless you
have a win-win situation. This includes banking. In fact, most
bad experiences and loan rejections are the result of poor communication and lack of education: the banker’s lack of education
about your business, and your lack of education about the bank’s
procedures, policies, and constraints.
This mutual lack of education breeds misunderstanding, mistrust, and frustration. Ted Frost, in his book Where Have All the

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Multi-unit FrancHisee Is s ue II, 2011

What you can do
With these realities in mind, let’s examine some of the things you
can do to strengthen your banking relationship and increase your