This month, we gathered some great insight from JK Walker, our North Texas Regional President, on how to be prepared for a meeting with your banker to get the answers that you are looking for. He explains to us how learning to think like a banker can help you set yourself up for a successful outcome from your meeting.
So JK, why is thinking like a banker important for a borrower/business owner?
“When business owners think about bankers, the stereotypes that may come to mind could be a barrier to them thinking like a banker. And if you really were thinking like a banker, it would quickly dispel one of the biggest misconceptions about the industry in general. “Bankers only want to lend you money when you don’t need it!” The truth is, bankers spend that vast majority of their time working to finance their existing customer’s needs, while always building new lending relationships. Every banker you’ve ever met has hefty goals to meet. So, the best thing that could happen to a banker is getting to meet a business owner like you and figuring out ways to be of help. And the easiest way for them to do that for you is when you are prepared.”
You say that leading with your background information is key to getting to know your customer’s business. What kind of information are you looking for?
“We want to know how well you can tell your own story. Bankers want to know all about your background and how you started your business or came to own it. What is happening on the leading edge of your industry? What are the significant financial trends? Who are your biggest competitors? What is your competitive advantage? Who are the key players in your company? And what are your short and long-term goals? With this information in hand, they’ll be ready to take the next step.”
Now that I have told my banker my background, I know that he will want to take a look at my business’s financial records. How should I present these?
“Most business owners are very skilled at what they do. The most successful ones are also skilled at measuring what they do and how they do it. Production costs, overhead, velocity of sales, collections, seasonality, gross and net profit margins and other metrics help establish trends year over year. And these trends not only allow business owners to compare themselves to peers in their industry, but also to identify their own strengths and weaknesses and areas for possible improvement. And when you are thinking like that, you’ve stepped into your banker’s shoes.”
What makes me a quality candidate in a banker/lender’s eyes once I have provided all of the above information?
“In businesses today, there’s generally little room for error, especially when it comes to operating profitably. Competitive advantages revolve around quality of product, service and delivery. And that all applies to bank lending as well. For us, quality of product depends solely on the quality of our customers. Service and delivery boils down to knowing:
- A prospective customer has a clean credit record and history of repaying obligations as agreed
- The historical income of the business has been sufficient to repay the proposed loan
- Collateral offered for the loan meets acceptable advance rates based on type
- The company and its ownership possess adequate cash reserves and equity in company assets to support the business in the case of unexpected downturns (COVID-19 for example)
- The purpose of the loan and intended use of funds will benefit the company and its owners
These categories of credit standards, commonly referred to as the “5 C’s of Credit”, are used to assess the quality of the Character, Capacity, Collateral, Capital and Conditions of our borrowers. But they can just as easily be used by business owners to determine their own creditworthiness, their ability to repay debt to grow the business, the amount of financing their company assets could support, their secondary repayment ability, as well as the overall benefits to be derived for your company by taking on debt.”
“When you can do that, you’ll be thinking like a banker. And you can be confident knowing the answer you’ll get before you even ask. If not, just ask your banker!”
Regional President, North Texas