Ten Dos and Don'ts
Your Banker Happy
By Gary Goldstick
Vol. I, Issue 3
Congratulations! The bank has approved your loan. You have a few
days to enjoy the euphoria of landing that line of credit before
you need to focus on the reality of implementing the business
plan you submitted with the loan application. Achieving this goal
depends, in part, on keeping your banker happy. Ninety percent
of business failures result from poor management, much of which
falls into three general categories.
Failure of management to anticipate future market conditions;
Failure of management to learn from experience;
Failure of management to adapt to a changed environment.
Your banker is well aware of the nexus between ineffective management
and business failure. She will be watching your business for evidence
of these failures throughout the life of the loan. How your banker
perceives you and your business will influence what happens to
your loan. The bank is not obligated to renew your loan or to
provide you with additional funds should you need them. The bank
may even decide to call your loan before it is due. If you repeatedly
fail to meet your plan milestones or experience unanticipated
losses, the bank may invite you (on short notice, of course) to
find another bank. The bank is always looking for ways to increase
the quality of its assets by replacing "marginal" clients
with those that have good track records and show promise. Being
asked to take your business elsewhere is unpleasant at the very
least. You will have to put your great growth plans on hold while
you devote all of your immediate energy on finding replacement
financing. Once you establish a satisfactory banking relationship,
you will want to nurture it. The smart businessperson begins to
prepare the next loan request the day after the current loan request
funds. Creating a successful banking relationship requires that
you take certain positive actions while avoiding perilous ones.
The Major "Don'ts"
1. Don't hide from your banker when she calls to inquire about
late interest or principal payments. Call your banker the minute
you determine that your payment will be late, explain why, and
tell her when she can expect to receive your check. The bank prepares
a daily report of delinquent borrowers. Your frequent appearance
on the list may cause the bank to downgrade your loan.
2. Do not overdraw your account, and never "play the float"
or kite checks to solve a cash flow problem. An occasional overdraft
due to a clerical error will not alarm your banker. But cash management
that depends on the float as a source of working capital will
lead to frequent overdrafts, and will damage your management team's
3. Don't color the information you provide to the bank. Tell
it like it is the good, the bad, and the ugly. Dissembling,
stonewalling, or outright lying to a banker cannot possibly have
a positive result.
4. Don't pursue unrelated business or private ventures that prevent
you from devoting sufficient time and energy to your business
that has borrowed the bank's money. A consistent pattern of neglect
will lead to a loss in the bank's confidence.
5. Don't take the credit relationship for granted. A former G.H.
Goldstick & Company client with an excellent banking relationship
used working capital to purchase capital equipment even
though the loan agreement required prior approval by the bank.
He only informed the bank after the equipment was delivered and
paid for, confident that his excellent relationship with the loan
officer and his impeccable payment record would carry the day.
It did not, and this client soon found himself scrambling to find
1. Read your loan agreement carefully and set up internal systems
and procedures to ensure that you comply with the loan's technical
requirements. A bank is a bureaucratic organization, intent on
maintaining a paper trail for senior managers and bank examiners.
Many entrepreneurs are far too casual about the technical requirements
of loan agreements, such as the submittal of periodic financial
statements, certificates of compliance, and evidence of insurance
in force. Paying attention to these issues proves your professionalism.
2. Make sure the banker hears any bad new from you first. If
a major customer is about to file bankruptcy, throwing doubt on
a portion of your receivables, you want to be the bearer
of bad tidings. Learning this negative information from a customer
or the trade press, for example, could cause your banker to conclude
that you were either not on top of your receivables or that you
were less than forthcoming in your representations to the bank.
Neither conclusion helps your credibility.
3. Keep your banker fully informed about your past and projected
performance against your business plan. The bank made the commitment
on the basis of the plan, so the plan establishes the benchmark
against which the bank will measure your performance as an executive.
If you expect the company's future results to fall short of the
plan milestones, alert the banker and be prepared to explain why
the shortfalls will occur and what you are doing to get back on
4. Make promises you can keep, and keep the promises you make.
Your character and credibility are your most valuable assets.
Making unrealistic and extravagant promises can destroy your reputation.
5. Finally, continue to charm your banker. Periodically invite
your banker to your plant or offices and brief her on the current
developments in your industry. Explain your strengths and weakness
and how your competitive position may have improved or weakened.
Explain your strategy for maintaining or increasing your market
share. Solicit her opinion about matters in which she is knowledgeable.
Make sure she realizes that you appreciate how important she is
to the continued growth and prosperity of your business.
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