Negotiate Better Deals Before You Need Money

It is vital that your business is able to access capital funding whenever it needs it.  If you have a good track record and have been paying your loans back on time, but now find yourself jumping through hoops for your lender, it may be time to start shopping around - before you really need the money.  There is a lot of truth in the old saying that a bank only lends money when you don't need it.  The good news is that there are a lot of banks competing for your business.  Many businesses today now work with more than one bank - just to keep a level playing field.

With high lender relationship manager turnover and most products and services driven by  phone or internet, many business owners feel they can no longer rely on their lender to understand  their business needs for the long-term. Banks talk about being "relationship-based" driven. Unfortunately many banks, large and small, have not yet found the right mix of developing high volume sales organizations, the right product mix, good client relationship management and retention practices.  Business owners are empowering themselves by taking more control of their financial destiny by more scrupulously reviewing their current banking relationships before they need capital.

Here are some important tips to keep in mind when talking with banks:

1.  Will the bank give you all the money you need?  -  Find out what is the maximum loan amount a lender will provide to you and over what period of time will this potential amount be held for.  Get it in writing.  Amazingly, many lenders will try to cut loan amounts lower, with their comment that you don't really need that much.  If you get this push back, interview other lenders, even if your lender's interest rate is the lowest in town. It's better to know now the maximum lending threshold you have with this bank. 

2.  How willing are they in recommending additional funding sources to supplement what they can offer?  These additional sources include not only other departments within the bank, like investment capital, but also outside, like the Small Business Administration, Ohio Department of Development, Cuyahoga County Economic Development, JumpStart, BioEnterprise  programs.  Will they help you structure the deal with the other sources?

3.  How flexible are they in what they recognize for collateral coverage? -  This includes commercial real estate and existing equipment, accounts receivables, inventory, intellectual trademark property, marketable securities and other assets of value.  The more assets recognized, with the highest loan to value percentage, will get you the highest loan amount.

4.  Does the bank have hidden charges or creeping fees? -  Banks make a significant portion of their revenues in charging fees.  Carefully assess all costs for setting up any new loan, successive annual fees like renewal fees, service fees and late fees. Also evaluate the checking and cash management fees and credit card fees. Late fees on credit cards are not only getting high again, but one late payment could trigger your interest rate for the remaining debt owed on credit cards to double or even triple.   

5.  What about personal guarantees? -  If your company has a strong balance sheet, you should not be required to sign personally.  If a personal guarantee is being required, ask the lender what you must do to remove the personal guarantee.  A personal guarantee puts your home, personal assets and investments at risk. 

6.  Help in getting out of government-backed guarantee programs to remove personal guarantees -  Personal guarantees are required for government-backed loans like the SBA 7(a) and CDC 504 programs.  If your company is strong enough to no longer need these federally-backed loans, you can get out from under these loans, convert the loan into regular senior debt and remove the personal guarantee.  If your bank will not help you, other lenders may provide the help if they want your business.

7.  Stay away from pre-payment and other one-sided clauses - Bank documents are generally created by automatic document forms that carry "standard" clauses like the prepayment clause.  Contrary to popular opinion, any clause in the document can be negotiated.  Pre-payment language is a perfect example of a clause that can be negotiated out of a deal.

8.  Bank size. - Bigger is not necessarily better. Or worse.   Many banks today are getting so large that the ability to effectively manage their business is getting much harder.  More pressure than ever is put on banks to beef up their "bottom line for the shareholder" by cutting back on service but increasing fees, at the expense of the business client.    Carefully look at the turnover of the personnel in a particular position, whether it is the manager, the lending officer, the cash management officer or the branch personnel.   In northeast Ohio, the turnover rate, on average, is three years for a commercial lender.

9.  What is the bank's reputation? -  Look beyond the commercials and slick ads.  Don't be afraid to ask for references from a lender.   Do talk to other businesses on how they have been treated by the various banks.  Look for trends like management turnover and bank mergers.  Watch how thier day-to-day operation affects your doing business with the bank after a merger or acquisition.

10.  How does the service meet your expectations and at what cost? - Clearly define what level of service your company needs from the lender.  Investigate all associated fees on services you use regularly - ranging from online banking to wire transfers and compare to other banks.  Interview not only the lender, but the support staff on your account.  The support operations will probably have more contact with your company on a day-to-day basis than the lender.  

By establishing your expectations upfront, both you and your lender will have a better chance of understanding the financing and support you need. 

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About the author: Marsha Powers is president and CEO of Powers Financial Group Inc., which specializes in helping companies secure financing for business loans, commercial real estate, mergers and acquisitions, restructuring debt and consulting services.

www.powersfinancial-group.com

                                                     Powers Financial Group Inc.    ©2007