This is the seventh in a continuing series of articles from Ron’s newest book, Getting to Yes with Your Banker, which includes 93 secrets you likely didn’t know about dealing with your banker. Presented in a Click and Clack format, from an entrepreneur’s and a lender’s perspective, the book is co-authored by Ron Sturgeon, a serial entrepreneur, and Greg Morse, founder and president of Worthington National Bank, a community bank with four locations throughout Tarrant County.
The book is packed with tips and advice about how to choose and get along with a banker, what your banker wants to see and other valuable tips for both start ups and existing businesses from a banker’s and entrepreneur’s perspective. In the previous article, we covered ways to expand your business relationships within the bank. In this article, we’ll look at whether size matters in choosing a bank.
Does Size Matter?
Today, as a business owner, you have a wide range of banks to choose from. Doing some online research before making your selection is imperative, because you don’t want to waste time pursuing a bank that’s not right for you. You need not only to make sure that you are pursuing a relationship with a bank that understands your business, but also to make certain that you’re dealing with a bank that can meet your financial needs.
One Size Does Not Fit All
Ron: I’m a huge advocate of community banks. With big banks, if you can fit in their box, you’re fine. Everyone thinks, well, I have a checking account at my Big Bank; I financed my car there, so I’m going to go see them about my business loan. But, generally speaking, the underwriting policies at big banks are not going to give you credit for your experience; they’re not going to give you credit for your character. You need to be at a community bank.
Greg: You need to have a bank that matches your business philosophy and the size of your business. You simply have to have the bank that matches you. Sometimes, it’s not about scale; it’s about skill.
You don’t need a big bank if you’re a little widget manufacturer. Now, if you’re an international widget manufacturer, then you might need an international bank. But for most people, that’s not the case. So you need to find a bank that is the right size for you.
Ron: It’s also important to know the size of the bank, because that could have a lot to do with its appetite for lending. And you want to know what your individual lender’s loan authority is before you make that decision. I used to ask people that straight out. Some people would tell me; others would dance around it. But when a lender tells me his loan authority is $25,000, I know I’m meeting with the wrong person.
Every lender has a “choke point.” Some lenders can make a loan of up to $300,000 with no problem, but when it gets above that, they start sweating. And when it gets above $500,000, they choke. It might be a wonderful loan, but they just have a threshold that they can’t get past.
It doesn’t make them bad loan officers. But it does limit your ability to grow, so if you happen to be with an officer like that, and you need to go beyond his or her choke point, you’re going to have wasted time building a relationship only to find your lender isn’t able to grow with you past this point.
You also want to consider the process for loan approval relative to loan authority. All of the banks have different ways of handling this. Some of the banks layer these amounts so if you have a loan for $100,000, another officer can make a loan for $100,000 and then a third guy can make a loan for $100,000, so together they can make a $300,000 loan, without board approval. Just ask, most will tell you what their process is.
Other banks will give you $100,000 and then once you go past that, it goes to a committee, up to a million dollars. At $1 million, it goes to a senior committee, and then at $5 million, it goes to the board. The numbers may be different, but you get the picture.
Every bank has its own procedures, so you’ll need to learn those. Ask. Most bankers are willing to tell you the amounts and the processes.
In the next article, we will continue our discussion of how to choose a bank that is the right size for your business.
Ron Sturgeon, business owner, consultant and peer bench marketing leader, combines over 35 years of entrepreneurship with an extensive resume in consulting, speaking and business writing. Ron can be reached at 5940 Eden, Haltom City, TX 76117, 817-834-3625 or by email at rons@MrMissonPossible.com.