Tips For Securing Bank Financing
- I can just get an SBA loan.
- SBA loans require no money down.
- Special interest groups get preference in obtaining financing.
Find the Right Type of Bank
- The Big Banks- regional, super regional.
- Small Banks- community banks
How much can the bank lend to one borrower?
- What type of loans do they like?
- What are the repayment/facilities terms?
- Term Loans: 5-8 years.
- Revolving Credits: 3-5 years.
- Bank Evaluating Issues
- Accessibility- Who do you talk to after the ink is dry and a problem comes up.
- Getting a loan over the phone or through a web site is fine, until a problem occurs.
- Wide Range of Capabilities- Does the lender offer the full range of financing services to meet your future needs in areas of expansion, acquisition, or even a change of direction?
- Resource Sizes- Does the lender have the financial resources and the lending flexibility to meet your needs as your business grows?
- Credit Decisions- If the lender able to understand your business taking into account your total picture including the business potential.
- Commitment- Is the lender prepared to support your business regardless of economic fluctuations?
Presenting A Loan Request
- How much do you need?
- What is the money going to be used for?
- Why is this good for your business?
- When and how will you pay the loan back? If you are requesting a loan to finance an acquisition, is there enough existing cash flow to make the loan payments? If not, when and how are you going to make those payments?
- Understand money flows only when the risk is zero.
- The bank is looking for high yielding low risk assets. * What if your plans don’t work out?
Bank Etiquette Tips
- Go in recommended.
- Deal directly with the person who will handle your loan.
- Never pick a bank, always pick a banker.
Get to know your banker and his bank- Establish a relationship.
- Understand the bank’s approval process.
- Go in prepared. Have your business plan prepared. Understand each plan is unique.
- It is impossible to give the banker too much information.
- Practice answering the single most important question- how will I repay the loan?
- A short No is better than a long No.
- Look out for yourself.
- Everything is negotiable.
- Prime or Base rate?
- Bankers hate surprises.
The Six “C’s” of Credit Evaluation
- Cash Flow.
The Venture Capital vs Banker Route
- The emphasis is on collateral.
- Control with covenants.
- The Ratio Analysis based on a leverage ratio.
- How will the bank get the money back. Insufficient cash flow = No loan.
- Emphasis is on sales and customer need.
- Control is exercised through seats on the board.
- Projected value of stock is key.
- Expected return to investors.
- Understand, going in, what happens if you don’t make your numbers.
Need help with a deal financing issue? We’re the experts. Call Grimes, McGovern, & Associates today.
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