Is finding the right banker for your business an easy goal to achieve? The short answer is, no!
First, let’s examine the key characteristics you want in a lending institution and its banker.
In regard to products and pricing, you will want a large enough credit line for working capital and/or a term loan to meet the projected cash needs of the business. Some banks and other lending institutions only offer specialized financing, such as on accounts receivable and inventory only. Others will also consider loaning on fixed assets and real estate. There are other services/factors that may also be important.
The respective interest rate(s) and other payment requirements, such as the length of the term loan amortization are also important, as they affect both profitability and cash flow.
Lastly, find out about all of the costs for a new loan: periodic collateral audits, appraisal fees, closing costs, prepayment penalties, etc.
Now let’s examine terms and conditions: You will want to understand and analyze a bank’s proposal as to collateral requirements, covenants, personal guarantees, all of which can be concerning personally and challenging for the business.
Find out what analytical measurements the bank will use to initially evaluate and then track your corporate status. All lenders today have criteria and your company needs to fit into their “box” to be seriously considered.
Finally, the relationship is also very important. You will want to feel that the banker understands your business. It is very important to be sure that the banker can be part of the company’s team and that he or she is compatible.
To conclude, it is my experience that many banks and other lending institutions may appear to meet the company’s needs, but you should do your own analysis to make sure you are committing to a bank that can deliver what your business needs. It is recommended to get several bids. It may take a while, but choosing a lender is a very important decision for a company and for the owner(s) personally.
Richard Taylor is president of Global Capital Advisors and M&A Consultants Ltd. in Milwaukee.