The CEO’s 10 C’s of Borrowing
As a business owner, you should strive to understand how your banker thinks – and why he thinks that way. This can have a positive effect on your relationship and make it easier to get money when you need it. “The CEO’s 10 C’s of Borrowing,” which will help you become a better borrower, enhance your relationship with your banker and make money more available when your business needs it most.
1. Character is of the utmost importance to bankers.
Bankers need to know you’ll do the right thing when your company is in distress. If they can’t trust you, they can’t put money in your hands. That doesn’t mean fake good character – it means have and demonstrate good character.
2. Carelessness comes down to poor record keeping.
Run your shop well, which includes good book-keeping practices, regular audits, competent controllers, and mixing up your monitoring practices. Not being careless also means verifying for yourself the details of your business’s financial situation.
3. Complacency is not an asset.
Banks are interested in how you react to tough situations. Don’t just tell them what you’re legally required to when they ask; keep them updated to avoid surprises. This is all a part of the larger principle of being proactive rather than reactive.
4. Contingency Plans are key for orderly succession if something happens to you.
Bankers value stability, If they know what will happen to your business in the event of various catastrophes, they’ll continue to work with subsequent leadership. It’s also wise to introduce your banker to the future generation of leaders at your company. Have contingency plans. Nothing works out like your spreadsheets suggest.
5. Capital is your net worth (assets minus liabilities).
Bankers want an extra cushion of equity so they can be more flexible with your company in case it has a bad year. If you can show your banker that you’re capital-wise, he’ll be more likely not to call your loan after a bad year.
6. Collateral is a bank’s leverage and makes bankers feel more comfortable.
Collateral does not repay a loan, as many entrepreneurs think when they pledge their assets, but again, it does ease the banker’s mind.
7. Capacity is your ability to repay.
Bankers check to see if you can repay what you’re asking for – you’re more likely to see the money.
8. Competition works to your advantage.
Banks are concerned about their competitors’ interest rates, collateral packages and guarantees. You can use this to your advantage by doing your homework when seeking a loan and making that clear to your banker. Knowing about your bank’s competition can also let you prepare for a quick capital search should your banker pull out.
9. Controls are your built-in monitors.
Bankers want to know about your company’s controls. Outline the steps you take in your plans and conversations with your banker; ask for his recommendations. If you find an issue, correct it and then update your banker that you’ve fixed the problem.
10. Communication is essential.
Almost every one of these tips hinges on communication. Don’t keep things from your banker. If he knows what’s happening he can work with you instead of against you. Work with your banker for the best relationship.
With “The CEO’s 10 C’s of Borrowing” in mind you’ll be better equipped to understand where your banker is coming from and not get frustrated when things don’t seem to go your way. Talk with your banker and try to understand him. It will only be to the benefit of your business.
Source: Vistage International
