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When presenting to a bank, be ready to be tested

(Editor’s note: This column is part of a continuing series related to the financial challenges of accelerated growth, and in this case, highlights the relationship between companies and their bankers.)



“I saw a bank that said ‘24 Hour Banking,’ but I don’t have that much time.” – Stephen Wright



John Wilson, CEO of Ace Business Stuff, was exhausted from his round of bank meetings. He liked most of the bankers, but was a little more skeptical when one of his friends reminded him that they were always at their likeable best in the first meeting.

Most of all, he was reminded that his timing wasn’t very good. The economy was sputtering – some would say failing – and he could tell by the subtle but probing questions that the banks were asking.

“Hi Lary,” he said when Lary Columnist answered the phone. “You asked me to call after a few bank meetings, so here I am. I’ve got just about enough energy left to find out from you how likely it is that we’ll get any money at all.”

“I’m sure it wasn’t all that bad, John. I hope you followed the process we discussed last time – the concept of ‘SIR,’ as in ‘Yes SIR?’ It’s a simple mnemonic to remind you of the process to follow when seeking a banking relationship – selection, inquiry, reaction. How did it go when you met with the Bank of the Mississippi?”

“Well, you were right about Morey Greenbacks. Really nice guy, but seemed pretty skeptical about taking on any new clients – at least it seemed that way after his exposition about the economy, growing inventories, tighter credit, more loan losses, etc. If I thought that way about new business opportunities, I’d still be digging latrines in a corn field.”

“What kinds of questions did he ask?”

“Mostly he was concerned about inventory and our sales cycle. I was glad you prepped me on that, but his focus seemed to be that the bank was reducing its willingness to loan money on inventory and that they had recently reduced their standard advance rate against inventory down to 40 percent of the ‘lower of cost or market.’ When I talked to Tom Sampson, our controller, we couldn’t make that work to finance our new promotional program, so it’s probably a non-starter for us.”

 “Did you meet with anyone where it turned out a little better?”

“Well, yes, I was saving the best for last. Tom and I met with Frank Lee Rich over at Break the Bank. He was a nice guy, too, and a straight shooter. We got part of the same speech we heard everywhere about the economy, the squeeze on distributors, pressure on margins . . . but he added that they were still looking for new business and were willing to look objectively at what we’ve accomplished. Actually, he was pretty impressed that we haven’t borrowed before and have still built an almost $15 million business. To hear him tell it, I’m not sure how we did it, either.”

“That’s great, John, and validates the first building block of successful bank interaction - careful selection. All banks aren’t the same, and different lenders look at different businesses differently. What are the next steps with Frank and the others?”

“I think the ball’s in our court, Lary. That’s why I wanted to be clear with you about what we need to do next.”

“It sounds like you also benefited by following the second element of SIR – inquiry. You’ve learned that banks are in a tougher position today and will likely be more analytical, if not skeptical, of new customers.

“Listening carefully to them reminds you that you need to make a strong case for an analytical approach to your financial forecast and the metrics you use that measure your critical success factors, CSFs for short, or what some people call key performance indicators, or KPIs. The last forecast I saw showed that you were within most of the broad guidelines.”

“When we were at three of the banks, we asked about some of the specific criteria or metrics they were looking for. Can we come by sometime next week to review them with you before we present them to the banks?”

“Sure, John. The third building block we discussed, reaction, is the next critical step. How you react to what you learned during your inquiry is crucial to your success. We’ll review the key objectives of your presentation when we meet next week.”

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Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. He works closely with senior executives and their businesses to accelerate their growth and improve personal and professional performance. Please visit his Web site at www.exkalibur.com for supplemental materials related to this column and to learn about the CEO Round Table.