When Applying for a Loan, Honesty Can Bring Rewards
If you’re like many other business owners, you like asking your banker for a loan about as much as you like hearing from the IRS.
Why? Bankers want to lend money and business owners want to borrow it, but business owners worry that the slightest blemish on their financial condition will scotch the deal.
In that they are wrong. Lenders know that anyone who runs a business barks a shin or two along the way, and they worry far less about the troubles you see in running your operations than they do about how you overcome them. Lenders like clarity and they fear the unknown; the worst thing you can do in negotiating with them is to cover up your troubles.
The better idea is to acknowledge your bumps and bruises, tell your lender what caused them and what lessons you learned from them. Even failure becomes a threat only if you don’t acknowledge it and learn the lessons it holds out to you.
The payoff, if you do this successfully, is that you’ll get the capital you need to grow your operations. As outlined in this space in recent weeks, banks and other lenders are flush with capital these days; they need to put that money to work, and the consequence is that in this vibrant economy, no solid business need go without the help that good debt financing can provide.
“Lending is a service business with a powerful commodity--money,” said Cindy Trejo, principal of the Los Angeles consulting firm Thunderstone Consulting Inc.
“But for the business owner who wants to borrow it, the process is like standing in front of a total stranger and taking off your clothes. If you worry that your lender will say no to you just because you don’t have the perfect bellybutton, you create a gap in communication from the very beginning.”
Trejo spent 16 years as a commercial lender to mid-sized businesses and five years with an equipment leasing company before forming her consulting firm. She works with business owners in negotiating loans from commercial banks and other lenders, with a focus on companies in the entertainment industry.
Too many business owners seek debt financing when they face an emergency and can’t focus on the task, Trejo said. Worse, some minimize the emergency, even cover it up, in an effort to get financing.
“If you’re a borrower, your first responsibility is to see yourself honestly,” Trejo said. “Your second is to make sure that your lender does too; you have to communicate the truth about your situation, warts and all, telling your lender where you’re headed and how you plan to get there.
“If you need money in an emergency, you’ve got to be open about the emergency and what your plan of action is once you get the resources you need--capital.”
For their part, lenders could do better in making their own needs known in the marketplace, Trejo said. Lenders specialize in many ways, focusing on industries and businesses they understand.
They do not, however, make their specialties clear, Trejo said, with the result that borrowers and lenders alike spend more time looking for business than they spend doing it.
Business owners can’t make lenders better marketers, but they can cut through the confusion in the marketplace by presenting their own needs clearly, she added.
For example, if revenue takes an unexpected downturn because you misjudge staffing in your sales department, the smart thing is to acknowledge the problem, draw up a solid plan to address it, and get yourself into the financial marketplace without delay, even if this means making the effort yourself to find the right lender for your need, Trejo said.
“If you run a business, you’ve got dirt under your fingernails,” Trejo said. “You need to turn it to your advantage when you ask for a loan. Get out there with your business plan, your financials and a good story--because if you’re prepared when you ask to borrow money, you generate trust.”
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Juan Hovey may be reached at (805) 492-7909 or via e-mail at jhovey@gte.net.
