Small business owners often have this somehow vilified perception of banks. Seeing banks as purely logical institutions that bet and back on sure things, entrepreneurs are often frustrated when coming to terms with a bank to help fund their growing business.
Why is that a problem? Because banks are not heartless institutions bent on making entrepreneurs beg for credit lines. What people often forget is that banks are run by people. As such, when approaching a bank, an entrepreneur must view it as creating a strong and professional relationship with its people -- more specifically, the banker.
Any CFO, virtual or otherwise, will tell entrepreneurs that gaining access to a credit line from a bank is one of the more common financial problems of small and medium-scale enterprises. But what most of them won’t tell you is the root of that problem: that entrepreneurs see the relationship between them and bankers as boss (banker) and employee (entrepreneur).
Entrepreneurs see the credit situation as doing their job (working on the business) and then getting paid by the boss (rewarded with a credit line). The problem is, entrepreneurs forget that bankers think in terms of risks -- specifically, the risk that the entrepreneur might not be able to pay the credit.
As such, getting approved for a credit line is more than just about showing your dedication; it’s about showing tangible proof that you know what you’re doing. It’s the entrepreneur’s responsibility to have backup plans in place to ensure that you’ll do your responsibility (collateral). Finally, the entrepreneur must have the right character, which is often based on what you have accomplished so far, your bank history and how you conduct yourself.
Communication is key.
The reason (or one of the main reasons) why entrepreneurs often have a terrible relationship with their bankers is because the communication lines between them are poorly utilised. Entrepreneurs don’t see their professional relationship with their bankers as the “direct lines of communication” kind of deal.
However, it would be better for entrepreneurs to keep lines of communications open between them and the bankers. Instead of hiding out when problems arise, issues in liquidity, internal turmoil that affects sales, etc., the entrepreneur should be open and professionally talk it out with their banker.
More specifically, tell them what you’re doing to resolve the problem. If they hear about your problems from other people, it reflects poorly on you and your business. Bankers evaluate businesses upon your merit and potential. Unlike preconceptions, they don’t always see in terms of risks and challenges.
It all starts with you.
The entrepreneur should initiate and show the banker what he/she is capable of. To start off, do the following:
Show what value you bring into the table
Prepare a comprehensive business plan
Prove that you’re a credible and responsible manager
Open up your business and show that you have a reliable accounting and internal system.
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