BANKING ON RELATIONSHIPS

One of the most common problems faced by many business people today revolves around their ability to obtain the financing they need. This challenge becomes even more pronounced when we are faced with a tight lending environment. It also shows the importance of maintaining a solid relationship with your lender. Whenever someone gets turned down on a loan proposal, we have to review the facts and explore possible “whys”.

  • How do the historical numbers look? i.e. has your business been profitable in the past?
  • How reliable are the numbers in your financial reports to the bank? Are they CPA prepared?
  • What do your current cash flows look like? Have you completed some projections, and if so, do the projected trends look positive or negative? Even if they look soft in the interim, is there a projected turning point sometime in the future?
  • What are your plans for the next 12 months? In less detail, how about the next two to five years?

I’ve never seen a loan turned down without reasons. All loan officers have a dual and often difficult role to play. They are attempting to accommodate your need for loan funds, while protecting the assets (i.e. loaned money) of the bank. Most lenders are willing to provide you with their reasons for turning down a loan request. Let’s review common reasons for a loan request being denied and what to do in response.

  1. Weak financial history. Often this can be countered by a plan to implement changes. Can you suggest changes in your operation that make economic sense? “Insanity” has often been defined as “doing things the same way and expecting different results.” Make sure you are making changes to “turn the corner” and get back on the track to profitability.
  2. Lack of a clear plan. Do you have a defined plan and established goals for your dairy business?
  3. Maybe they are correct. This is a tough one, but if we cannot justify our investment in the proposed financing, perhaps we need to consider other options.

We each need to remember that a banking relationship, just like a good marriage, is a two way street. We need to always be showing improvement in our operating results, demonstrating we have a clearly defined plan with reliable historical numbers and sound cash flow projections. After you plan your work, then work your plan. Fine-tune your agenda as needed. At that point I believe lenders will be looking for you!