| If you cross paths with a financially successful | | | | Your commercial lender actually serves are your |
| contractor, odds are the company has been in | | | | representative to the loan committee. He must |
| business for a long time. Have you ever asked | | | | persuade the lending board to approve your loan. |
| yourself why? Why is it so rare to find a relatively | | | | Your commercial lender needs to have a good story |
| new, financially successful contractor? | | | | to tell about you and your business. Otherwise, he will |
| The reasons are many but the main one is that rapid | | | | not gain approval of your loan. |
| growth requires lots of cash. New construction | | | | In order to prepare your commercial lender for his |
| companies rarely have access to lots of cash. | | | | presentation, you need to: |
| Without access to cash, new contractors are forced | | | | - Write a business plan that clearly addresses sales |
| to grow very slowly. | | | | and marketing. |
| So, where do most businesses turn to for cash to | | | | - Prepare a financial budget. |
| fuel growth or to cover expenses when clients hold | | | | - Be willing to put your personal assets up as |
| payment? | | | | collateral. |
| Their bank. | | | | - Show that you have properly insured your |
| Do banks eagerly loan money to contractors? No. | | | | company. |
| As a banker friend recently told me "In general, my | | | | - Show a habit of leaving significant cash and wealth |
| bank views contractors to be un-bankable." His bank's | | | | in the company. |
| opinion appears to be in the majority. That doesn't | | | | Now, why would a commercial lender be willing to |
| mean that banks will not lend money to contractors | | | | work this hard for you? Because that's his job - to |
| and that doesn't mean you shouldn't try to borrow | | | | recruit businesses that need to borrow money for |
| money from banks. | | | | short periods of time. Because commercial lenders |
| What that means is you should make your company | | | | only have two sources of new business. |
| bankable. Allow me to explain how can a contractor | | | | 1. Steal clients from other banks. |
| becomes bankable. | | | | 2. Catch new clients just as they are becoming |
| Becoming bankable is relatively easy once you | | | | bankable. |
| understand how banks make lending decisions. You | | | | Listen to your commercial lender and don't take |
| need to develop a commercial lending contact at | | | | offense to his advice. The bank is going to require |
| your bank. | | | | collateral, as much of it as it can get. |
| Each commercial lender has a limit under which he | | | | If you don't have enough faith in yourself to risk |
| may approve loans or lines-of-credit without gaining | | | | your personal assets, your bank will not have faith in |
| approval from the loan committee. Any request | | | | you either. Which means that they will not bet their |
| greater than the limit requires committee approval. | | | | money on you. |
| Lending committees are made up of banking | | | | Remember, you need access to your bank's cash |
| personnel and outside advisors. The outside advisors | | | | and to get that access you must make yourself |
| are almost always successful businessmen. Their role | | | | bankable! |
| is to judge the business asking for the loan. | | | | |