Bruce Enright, president of Tallgrass Technologies, a computer reseller in Kansas City, Kansas, has always held regular meetings with his banker.
They meet as often as once a month, "partially because I want to build his
comfort level so his
decision-making is not influenced by the element of surprise, and also for his
input and experience in a variety of industries," he
says."More formally, I will likely include him in our new board of advisors."
Venture capitalists invested$6.2BILLIONin companies in the first quarter of 2002, down 24% from the previous quarter.
, 42, needed $400,000 to buy out his
business partner, that long-standing relationship was key.Although the bank's loan review committees looked critically at Enright's balance sheet ratios, he
had a champion inside the organization who could go to bat for him."The strength of that relationship," he
says, "overcame the weakness of tight leverage and downward-trending profits."
Get the Book: Every banker will tell you business loans are often predicated on meeting and maintaining some well-established operating parameters.Take a glance at the banker's bible for these crucial business metrics: Robert Morris Associates' Annual Statement Studies (The Risk Management Association) or RMA.
This guide to over 600 industries includes common financial ratios and statements culled from a national survey of commercial loan accounts.Get a glimpse into the mind of a banker by picking up a copy of the RMA at a bookstore, library or bank.RMA benchmark ratios can become targets to qualify for, or maintain, commercial credit.
, shifting deposit accounts to his
ultimate lending institution was all part of the deal."As they stretched their ability to loan," he
says, "the reward was fee-based business including payroll accounts, wire transfers and credit card processing."
Anticipate Failure: It may seem counterintuitive, but a great way to gain a banker's trust is by discussing how your business could fail.Write down 10 things that will challenge your business-and the ways you'll overcome those challenges.This list of potential pitfalls not only shows that you have thought through your business, but also gives your banker great ammunition for the tough questions his
loan review committee will ask.
Be sure to include the old standby: key-person risk.If you die tomorrow, how would you repay the bank's money?
"The glass always looks half full when you are going into these things," Enright
advises, "but you want a good cushion."
, that was some protection from risk; he
made it clear his
home and retirement savings were off-limits as collateral.The bank agreed-and crafted special terms that protected him in a worst-case scenario.
Stay Vigilant: Although Enright negotiated a five-year loan amortization schedule, his
bank is not going to close the deal quite yet.The loan's covenants can change every quarter, and the whole loan is reviewed every year.Based on early discussions with his
is confident he
can keep the loan renewing annually.But any policy change at the bank could make the terms of his
Once you put together all the pieces-a great relationship, a solid business plan, risk coverage, and upside for the bank-you're ready to negotiate a generous loan package.For a well-prepared borrower, everything is negotiable.