Since 1999, enabling retailers and store owners to "Turn on your financial headlights!"

Banks Rent Money, Don't They?

How to use and improve your relationship with your bank.

Most of us treat banks as if they are utility companies or government agencies. Your bank statement even resembles a utility bill. But don’t be fooled. Banks are in business just like you.

Only they rent money.

That branch office is a retail outlet. Your banker is a highly trained salesperson. His or her job is to rent you money in a manner that guarantees the bank a profitable return. To that end, bankers want to reduce as much risk as possible.

Remember, banks profit by renting money and they demand evidence that your business can pay it back. To get access to the bank’s money, therefore, you must understand your banker and clearly communicate your needs.

See sidebar (below) for What a Loan Proposal Should Include

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Loan Proposal Contents

What a Loan Proposal Should Include

Loan Request Summary

State how much money you need, why you need it (for short- or long-term needs), how you expect to repay the loan, and when you will repay it.

Business Description

Describe briefly the past, present and future of your business.

Management Background & References

Outline your management structure. List the names of everyone involved and include a short background about each person. (Include this in a first request, or if you have made changes in your management structure.)

Market Strategy

Explain your market and your market strategy as specifically as possible. Describe your typical customer, your forecasts, your advertising plan and price structures. Let your banker know how the current economic situation will affect your industry in general and your business in particular.

Financial History & Projections

Follow your initial request with carefully compiled financial information:

three years of financial statements;
a list of collateral;
a pro forma (projected) monthly cash flow plan;
a pro forma (projected) monthly income statement;
a pro forma (projected) balance sheet;
the owner’s current personal financial statement

Contingency Plans

Be prepared to offer more optimistic and more pessimistic forecasts as contingency plans. Prepare summary sales plans and resulting cash flow analyses for both alternate plans. Show where you are going and how you plan to get there.

Dealing with Banks, Bankers, Other Lenders

Let The Institute help you.

Click here. More on Bank Loan negotiations.

Where Are Bankers When You Need Them?

Also in The Institute

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Which Bank for You?

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Bankers - Where Are They When You Need Them?

Most retailers are constantly in and out of the debt market to finance daily operations. Having a reliable lender is vital to your success. Recognize that your banker - the "relationship manager" - is in fact a salesperson; the actual credit decision will be made by "the loan committee".

Your responsibility is to arm your banker to effectively present your request to the Loan Committee. And that demands that you "speak their language". Especially in today's economy, the need to speak "Conversational Banker-ese" is greater than ever.

Plus, consider carefully the pro's and cons of different types of financial partner you might approach. Let's start with an overview.

	Advantages	Disadvantages
Traditional Banks	Stability Array of financial services Many to choose from Competitive pricing	Lack of retail industry experience or focus Often slow to respond; impersonal Less interested in smaller transactions Generally available only to profitable companies
Private Equity Funds	Provide "hands on" value/added expertise Generally well-capitalized May provide access to industry and management expertise	Provide "hands on" value/added expertise (Yes, it's the good news/bad news thing!) Strict investment criteria Equity ownership required Required returns often 25% + Require track record of a proven concept
Asset-Based Lenders	Nontraditional transactions Fewer financial covenants Industry focused	Rigid documentation standards Higher transaction costs Onerous reporting Traditionally perceived as lending only to troubled companies

The Institute's Owner's Dashboard

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Focus on Your Financial Strength

Use The Institute's Owner's Dashboard Trend Form to track your progress. It's a simple - yet powerful! - three-step process:

Step 1: Enter LY results for five key ratios

Step 2: Enter This Year's Targets

Step 3: Each month (no later than the 10th of the month!) enter YTD results

Immediately see whether - and if so, where - you need to make adjustments now to achieve the results you want. "Lead time" is one of your most valuable assets. Use our Owner's Dashboard Trend Form to put time on your side.

(Need more info on these ratios, how to calculate them, and what they mean? See the Retail Finance Basics section here at The ROI. And, view this online webcast from The ROI Co-Founders for more about the Owner's Dashboard. Click here to download and printout your own master copy of the Owner's Dashboard Trend Form)

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