How to Talk to Bankers

I spend a lot of time assisting clients in finding financing and in doing do I’ve learned a lot about what bankers are looking for from any prospective borrower. Here are some of the key takeaways I’ve learned over the years from talking to bankers:

Be Ready with a Worst Case Scenario. Borrowers invariably create a rosy best-look business plan to demonstrate how well they will perform with the borrowed money. But bankers have learned from hard experience that things often don’t go as well as planned. While bankers certainly want to see the optimistic business projection they are more interested in your worst case scenario, so a smart borrowers will prepare a worst case scenario along with the best case one.

The bankers wants to hear about everything that might go wrong with your plan – project delays, slow sales, higher than expected cost of construction – and then to understand how the borrower plans to cope with each potential snag. They want to be shown that the borrower will be able to repay the loan even if things go wrong. A banker is going to be far more impressed to see ta plan that considers the challenges and has a solution for every contingency. I’ve seen bank loan applications fail when the borrower was unable to answer simple questions about how their plan might fail.

Don’t Talk in Acronyms. Telecom borrowers are invariably highly technical people who understand the nuances of building and operating complex networks. The banker can understand this by looking at your credentials, experience and references. Most bankers don’t want to hear about the detailed nuts and bolts about how the technology works, and they are going to care a lot more about the products to be sold on the network and the plan to effectuate those sales.

I’ve sat on meetings and calls between borrowers and bankers where the response to a simple technical question elicits a fifteen minute spiel on the nuances of the technology. Bankers are not impressed with this, and in fact it can be worrisome if it they perceive the borrower as somebody who can’t explain their business in plain English – because the banker will know that’s what customers are going to want to hear. My advice is to tone down the technology unless the banker specifically wants to hear the details.

Understand the Market. I’ve had numerous clients over the years who have had the philosophy of “build it and they will come,” meaning that they were so positive of the superiority of their proposed network that they just assumed that people will buy their products. The vast majority of the business failures I’ve seen over the years were due to this blindness of the market.

Bankers are going to want to see evidence that people are ready to buy from the new network. In larger markets that might mean a statistically valid survey. In smaller ventures that is going to mean pre-sales and having a list of customers who are ready to buy service. Bankers also want to see a comparison of proposed prices and the prices of the competition  – I am often surprised by proposed new ventures that haven’t taken the time to look at actual customer bills in their proposed market. Do the homework and make the effort to understand the market before asking for funding.

Understand What Bankers are Looking For. Every lender is different and early in the process you need to ask them how they will judge your loan application. I recommend a two-stage process for getting a loan. The first meeting should be to understand what the bank is looking for. Have the banker describe the borrowing process and then use a second meeting to make a formal presentation of the business plan in a way that meets their requirements.

If the bank is interested primarily in collateral, then walk into the presentation ready to talk about that. If they are more focused in seeing a business plan that meets some set of financial metrics like debt service coverage ratio, then walk into the presentation ready to answer those questions.

Bankers talk in lingo just like our industry, and it’s vital to make sure that you understand what they want from you. I’ve seen many borrowers who don’t understand a bank’s requirements and who then never answer the basic questions the bank asks of them. It’s not uncommon for a borrower to be intimidated by the banking process and to be afraid to show that they don’t understand the banking lingo. In the end, if you don’t understand what your banker wants, then it’s likely you won’t be making the right proposal and the chance of getting a loan are greatly diminished.

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