With all the effort involved to grow a small business, many entrepreneurs don't put enough attention into choosing good bankers and developing a relationship with them. Owners are more focused on perfecting their product or service and getting the word out.
"We happened to have a client in last week, it's a relatively new business and they're growing and they've never borrowed any money, and I said 'What kind of relationship would you have with a bank?' And they looked at me very blankly," said Barbara Gory, president of Associated Senior Executives of Canada (ASE), a Toronto-based group of retired executives and entrepreneurs who volunteer relatively low-cost advice to small and medium-sized businesses.
"So I said, 'You need that relationship. It's your most important supplier.'"
Ms. Gory offers words of advice to business owners on dealing with the banks:
1. Search for a good bank. You should shop around.
2. Make sure you get a banker who is interested in your business. You don't want someone who thinks you're too small.
3. Be prepared to give them all the information they need, including a business plan, but keep it simple. A very helpful thing to have is a cash forecast, which you should have for your business anyway, but many people don't.
4. When it comes to arranging a line of credit, do it before you need it, when you're still happy and the bank is happy, and you can say 'I think you're the bank for me, we're growing, how about a line of credit?' And it just sits there, you don't use it until you need it.
5. For a new business or a young business, the bank usually wants a personal guarantee. Negotiate the personal guarantees, and the time to do that is up front. Say 'I'd like to limit it to this.' Or, 'I'd like to agree that if our working capital reaches this amount, or our equity reaches this amount, we can have our personal guarantee back.'
6. After you've had a meeting with the bank, and you've discussed things and agreed on things, write them a letter or an e-mail saying 'as we discussed today, this is what we agreed on.'
7. Keep your bank informed. Not just with good news, but bad news too. Say: 'I think we're hitting a tight spot here and we may need your help, but things are generally going well.'
8. Invite the bank to come and see your premises. You don't need to take your banker to lunch, but coffee's not a bad idea. And if you get a big contract, some new product, whatever you've got, keep the bank informed.
9. Be businesslike. You should dress neatly, you should not be too talkative. Some people try to do too much selling, and it's always a good idea to listen.
10. With a small business, the bank is often lending money based on their assessment of the owner. If they're impressed by the owner and you have a rapport, you get along well, that will go a long way.