So, you want to borrow money …
If you need a commercial loan, the environment is extremely attractive. There are many banks vying for your business as they shift more into business banking as the residential mortgage market dwindles due to competition and a down housing market.
Not only are you in a strong position to negotiate rates, but banks are more willing than ever to help you with business development – and help secure your successful start or expansion.
What advice do bank CEOs and presidents in Plymouth and Barnstable counties – as well as loan specialists who advice small businesses here – have for borrowers seeking to start a business or expand one? Here are some of their insights.
Dorothy Savarese, CEO, Cape Cod Five Cents Savings Bank
“Be very cognizant of not over-stretching too quickly, but instead build a good solid foundation and expand from there. Continue to keep an ear to ground in terms of shifting trends. Get good partners – banker, accountant and attorney – and make sure you understand your own financial needs. Get someone to help you manage growth effectively. Many successful businesses have gone out of business in their best year. Finally, always measure cash flow.”
Joel Crowell, CEO, Cape Cod Cooperative Bank
“We ask them to look at their cash flow. What’s coming in and out. Those who address that question generally will be successful. Do they have a history of paying their bills? A person whose credit is growing and can’t explain why is a risk. You want to ask a whole slew of questions. We know businesses that started on credit card balances, but at the end of the day, they could explain how they did it because they paid their bills all along. They had a track record at 16 percent instead of 8 percent.”
David Curtis, CEO, The Community Bank
“It is the best of times for borrowers. There are too many institutions competing for the small business. We recommend that businesses develop a relationship with one individual at the bank. A bank must adjust to the needs of the small business owner. We must reshape our box to what that person needs and not impose something they don’t need as part of the bargain.
Go sit with someone at a bank, and ask these questions: What is it that is unique about our organization? What can you do for me? Quite frankly, because there is so much competition, you should get fairly consistent rates. Given that, what is the add-on? What else are you going to get to help you grow your business?”
Jack Meehl, regional president, Sovereign Bank
“Too many times we see folks who have literally not planned to go into business. Not only do they not have written business plans, they did not plan at all. No research, no capital behind them.
It takes a fair amount of capital to get a business organized, let alone up and running and established. Too many times, people will have a major event in their lives that causes them to go into business. They get laid off. They get tired of working for people. They think, ‘I always wanted to do X, and I will do it.’ They have not done the real planning. They did not talk enough to other businesspeople, which is a great source of information and insight.
Having a sound financial position is only part of the equation. Having the experience and knowledge of either your product or how to run your business is critical. Great ideas are not a business plan.”
Bob Smyth, CEO and president, Citizens Bank of Massachusetts
“Make sure a banker really understands your business and what you want to do. Let them come up with ideas that make sense of for you and not for them. We never want a borrower to be stretched. If we set up financial covenants, it is an opportunity to continually re-look at what happened, and if it did, ask why?
We need a couple of years of financial statements. Sometimes, we look at tax returns.
Bankers should work with borrowers all the way along. It’s not just direct lending; it may be helping with cash management.”
Steve Lowell, executive vice president, Cape Cod Cooperative Bank
“People should not enter a field they know little, if anything, about. Clearly, it a path that generally has bumps. I would argue that a person grows through these bumps are the ones a bank enjoys dealing with the most. A person needs to have an internal accountant’s switch he or she can flip in their mind. It’s about profitability, not volume or size. They need to quantify for themselves where they can grow and where they need to be cautious.
For us, it is like parenting. Success is getting to a point where a lender doesn’t need us anymore.”
Kathy Maroney, loan specialist, Center for Women and Enterprise
“Don’t get discouraged if a bank won’t give a loan to your start-up. Some banks do, but most lenders won’t offer 100 percent financing.” New restaurants are seen as particularly risky ventures.
Key attributes of a successful loan-seeker are a stable personal credit history, cash flow – such as from a second job in the early stages – to pay back the loan starting 30 days after it closes, and collateral or a loan guarantee in case it doesn’t work out.
Many banks are looking for a personal credit score no less than 600.”
Steven Adams, regional advocate, U.S. Small Business Administration
He’s learned that “there’s often a mismatch” between bank marketing materials and the loan-seekers they target. “What they hear oftentimes is, ‘We are the bank for the small-business person,’ and they walk in and find something else going on.”
Charles Simpson, CEO, First Citizens Federal Credit Union
“You absolutely need a very strong business plan. You need people involved in that business plan who have experience or understanding of what you want to do. You must understand that if I take a risk, you need to take a risk too. Some people expect to have little skin in the game. Don’t expect banks, depositors or credit union members to take all the risk for your idea.”
Published in Cape Business May/June 2007
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