Ask The Expert

The following Q&A is meant to help you understand a banker’s thinking so you can increase your chances of securing the capital you need.

Bank lending to small businesses in today’s credit squeezed environment is becoming a rare commodity even though the Small Business Administration (SBA) received hundreds of millions of dollars from the stimulus package.

Q. How do I improve the relationship I have with my banker so that he will either increase my current loan limit or approve my loan request?

A. The first key point to always keep in the forefront of your mind is that your banker is primarily concerned with making sure he is repaid in full, that he can make a profit on approving a loan for you, and that, if these first two actions fail, he has enough collateral that when sold off he can make himself whole (meaning he needs significantly more collateral than the amount you borrow). Your needs may not be amongst his top three priorities or even his top five! There is little chance in today’s environment that you will be able to get what you want with a warm and friendly smile. You need to deliver the answers to a loan officer’s top three concerns in a professional, concise and logical manner. That means you should be prepared to disclose documents such as business plans, historical financial statements, budgets, proforma (future years) financial statements, personal net worth statements, itemized collateral statements that will be used to secure the loan, appraisals and lists of other unencumbered assets you have that can be used for collateral. While delivering all of the above in no way guarantees that your loan will be approved, it will go a long way in helping your banker understand that you know what he needs to do his job. As with most things in life, preparation is critical to winning the game.

Q. If the SBA has more money to give out, how can I get my fair share?

A. Though the SBA has money available to lend (mostly the 7A program), you must qualify for a traditional loan through your bank. The SBA is not lending the dollars directly to you—they are guaranteeing your bank (up to 90 percent currently) what they lend you. Regardless, you still must qualify for a loan, which means the answer above applies in full. If you cannot qualify for a loan at your bank, the SBA guarantee does not come into play. In some cases, it is more difficult to get an SBA 7A loan, as the bank makes additional demands. The SBA is an option, but there are also many other options available, and in this market, you should explore each and every one.

Q. If I ask for less than I need, do I increase my odds of getting the loan?

A. The reality is bankers and loan officers are very talented when it comes to minimizing their risk; after all, that is their job. This means they are good at analyzing a business’ financial stress points to see where it is likely to break. One of the most common breaking points is lack of cash. Tie how much you will need to how much you are asking for, and look at a cash flow forecast. If you notice that you are not asking for enough, a line of questioning might ensue. Bankers and loan officers may think you do not understand your business as well as they do, you are not being truthful or you are a real credit risk. These factors will cause a loan officer to work against you, not for you. It is better to ask for what you need and let the bankers and loan officers inform you as to how much they will give you. They may also be able to introduce you to other lenders that can participate and help you get what you really need.

The best way to view this situation is to put yourself in your banker’s shoes. He is in business just like you are, he has tremendous regulatory pressure and oversight right now and every decision he is making is being second guessed. If you were him, looking at your information package, would you lend the money? If the answer is no, his answer will be no different. Provide him with enough information and confidence to turn that “no” into a “yes.”