10 Things Your Investment Banker Won’t Tell You

Bankers are starving for business. So why can’t you get a loan? Read on for a rundown of 10 secrets that investment bankers don’t want you to know.

1. Bankers are starving for business. Why can’t you get a loan?

You might think that since bankers are hungry for “good” new business, there should be no problem getting a loan. But that’s not the case! They’re still handcuffed by tight lending criteria that they call “The Box” and few potential customers are fitting in this box. The good news is once you are in “The Box,” they will be very aggressive with interest rates and terms.

2. When your loan is up for renewal, your bank doesn’t expect you to negotiate!

Just when your bank thinks you’re locked in, you should actually be negotiating! Renewal is the perfect time to see if you can upgrade the terms of your loan. it’s an opportunity for you to be competitive and seek out proposals from other banks. Let your current bank know that you’re doing this — it might get you a better offer. Nine out of 10 times, your existing bank will cut pricing to remain competitive.

3. Your Banker’s industry IQ is critical.

Be sure that your banker understands your company and industry. Educate them — invite them to visit your company and show them how well you run your business.

4. Your bank might not be right for you!

A good fit is important: You want a bank that wants your business. If your business isn’t important to them, then you need a new bank! Before you decide on a banker, it’s important to get the answers to some important questions. For instance, what’s the bank’s average loan size? What percentage of the bank’s business is with firms your size? Do they have all the services you need?

5. Your banker is a salesperson.

Your banker has goals to cross-sell other bank products. This could be positive: If you need a lot of bank products, you can leverage these goals to get lower interest rates. But be wary of having unneeded products foisted on you.

6. The credit committee meeting is key.

What really goes on in a credit committee meeting? Approximately eight bankers meet, with each loan getting a 10-minute discussion. You can impact this discussion by educating your banker. The more he or she understands your business, the better he or she will deal with the committee.

7. Banks offering the best deals are also the busiest.

The best way for you to get on top of the pile is by providing a turn-key document for your banker — the easier you make it, the better, and the quicker your application will be processed. Your document should include: an explanation of your business, earnings and forecasts, collateral, and a justification for how this is a low-risk loan.

8. It’s going to take a long time to get your loan approved.

The bank will often say 60 days, but it actually may take two or three times as long. To speed up the process, you can provide the bank with a complete package of information, respond quickly to info requests and questions, and do your best to facilitate meeting schedules.

9. After your loan closes, the team that booked it may disappear.

This is common; the new deal team isn’t the portfolio team. Ask to meet the portfolio team—the bankers who will manage your relationship after closing — even before you sign up to start the approval process. By educating them early about your business, your transition after the close will be easier.

10. Personal guarantees are no longer required.

Today, personal guarantees are up for negotiation. The stronger the company, the more negotiating leverage you have. There are negotiating options for less than stellar companies:

• Limited Guarantees: Offer a limited dollar amount (i.e., 20% of loan).
• Validity Guarantee: You’re guaranteeing what you told them was valid.

Myth: Banks are only lending to strong companies and holding back from the weaker ones. Fact: Lots of bad loans are being made and many solid companies are being rejected.

5 Reasons Your Loan Application Is Rejected

1. You Lacked Commitment or Confidence.
Avoid missing a loan opportunity by adhering to the following rules of thumb.

• Come in confident.
• Demonstrate past success and plans for future success .
• Avoid behaving in a way that demonstrates a lack of commitment or confidence.
• Don’t act desperate for a loan!

2. You Stretched the Truth.
Putting a positive spin on things is essential, but making things up is unacceptable (and extremely likely to backfire in the future if not the present).

3. You Didn’t Look Professional.
Look the part of a respected leader of your company. Dress conservatively and project professionalism.

4. You Couldn’t Answer Questions About Your Company
Banks want to be confident that you know your business. You’re much more likely to get approved if you’re prepared to answer the following questions with accurate and thoughtful responses.

• How did you do last year, or the last two years? How are you doing YTD?
• How much money will you need, and for how long?
• How will you repay the loan?
• How do you explain your forecasts?

5. Failure to Disclose Risk.
Disclose all your risks, and be able to explain the reasons for the risks and how you have handled them. Failure to disclose risks will cause banks to think you can’t handle or don’t understand the business, leading to a lack of of trust.

Alan Scharfstein is President and founder of The DAK Group, an investment banking consultancy serving mid-market firms. Visit The Dak Group’s website here.

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