The first article in this series listed several tactics to increase your business success. Each of the successive articles takes a closer look at one of those tactics. Last month, we talked about the importance of keeping perfect credit and building long-term banking relationships.
No matter what anyone else tells you, ALWAYS have and use two banks. Have a business bank and a personal bank, or mix it up. No matter how you do it, you must have loans at two banks to keep your bankers on their toes.
What kind of banks should you work with? Don’t choose a large national bank. Instead, find a local community bank. Every area has at least two, and most areas have several strong community banks. These banks typically have less than 500 million in assets, but the very largest community banks may have as much as 1 billion.
Open a checking account to begin your relationship with the bank. You need to have a separate business account in any case. Ask your banker what the bank’s loan-to-deposit ratio is. He or she will be thrilled that you are informed enough to want to know.
Here’s why you need to know. As a practical matter, banks don’t loan more than 80% of the value of their deposits. That means a bank with $100 million in deposits and 75 to 80 million in loans isn’t going to approve your loan PERIOD. On the other hand, a bank with a loan-to-deposit ratio of 60% is likely to welcome your loan application.
Do you see why having two banks is so important? If you have only one banking relationship, you may need money when your bank isn’t inclined to lend because of its loan-to-deposit ratio.
The loan mix in a bank’s portfolio can also affect your likelihood of getting a loan. Banks love to do loans for owner-occupied residential real estate, but they may be less open to a particular kind of loan if they feel that have too much density in that kind of loan at the time you’re asking. If you have the right relationship, your banker should be willing to tell when loan density is affecting decisions.
When you are applying for a loan, NEVER allow a banker to check your credit until you are ready. Instead, bring your banker a credit report with tri-bureau scores when you discuss the loan. If you decide to go ahead, your banker can pull a report to approve your loan.
In the meantime, however, you won’t damage your score with too many inquiries. In addition, if you have to go to a different bank, your second bank will not immediately see that you were just across the street trying to get a loan. Protect your credit score and your privacy by being smart about when you let a banker run your credit.
Remember only you can make business great!
Ron Sturgeon, Mr. Mission Possible, has been a successful business owner for more than 35 years. As a small business consultant, he can deliver wisdom and advice gleaned from an enviable business career that started when he opened a VW repair business as a homeless 17-year-old and culminated in the sale of several businesses he built to Fortune 500 companies.Ron has helped bankers, lawyers, insurance agents, restaurant owners, and body shop owners, as well as countless salvage yard owners to become more successful business people. He is an expert in helping small business owners set the right business strategies, implement pay-for- performance, and find new customers on the web.
As a consultant, Ron shares his expertise in strategic planning, capitalization, compensation, growing market share, and more in his signature plainspoken style, providing field-proven, and high-profit best practices well ahead of the business news curve. Ron is the author of nine books, including How to Salvage More Millions from Your Small Business.
To inquire about consulting or keynote speaking, contact Ron at 817-834-3625, ext. 232, rons@MrMissionPossible.com, 5940 Eden, Haltom City, TX 76117.