Tuesday, March 18, 2014

Lender Matters: What Business Owners wish for in a Banker

Lender Matters, Spokane Small Business Development Center Banker E-newsletter
By:  Alan Stanford, Certified Business Advisor.

In what will become a regular feature in this newsletter, SBDC Advisors from around the State of Washington have collaborated to share their thoughts and comments received from small business owners about common issues facing small businesses today.  

Taxes, healthcare, and the condition of local economies appear near the top of every business owner’s list, but one issue seems to be drawing the most comments from SBDC clients ….the challenges (and often hesitation) of applying for a business loan. Our colleagues provided some valuable feedback; we found their comments interesting and a bit surprising so we thought we would share some of them with you.

Does trust matter?
We have taken these comments to heart to better prepare ourselves for assisting business owners and aspiring entrepreneurs understand their businesses and raise the capital needed to operate efficiently and profitably.  In 2013, the SBDC network in Washington State assisted over 3,000 business clients raise over $36 million in new capital.  Can that amount go higher?  Absolutely it can.   

So what is the primary thing that small business owners are looking for in a lender?   

A Business Relationship.  Not a relationship where the goal is a cross-sell ratio, or one where the owner is always called by name, but a relationship that is built on four key elements:
  • trust
  • expectations 
  • communication
  • consistency
It is interesting to note that SBDC client comments were not directed at any one specific bank, credit union, or capital fund in any one specific part of the State; they seemed to reflect the general condition of lender-borrower relationships and the attempts by both parties to come to an agreement on a definition.  

The two elements of a business relationship that came to our attention most often were “building Trust” and “meeting Expectations”.  In this issue we will present two of these elements as described to us by our business clients.  

Trust has been defined as “achieving a level of confidence to rely on a persons' (or entity’s) integrity, ability, strength, honesty, and effectiveness”.  You would think that banks, credit unions, and economic development groups being so heavily regulated and administered that Trust is the perceived protocol.  

Here is what our business clients are saying:
Why won't they just
give me the money?
  • “The loan officer does not seem to have a genuine interest in my business or have the experience to know and understand what I do.”
  • “The lender does not seem to have the resources or tools available to service me; for that matter, front line staff are not trained or prepared to answer my questions.”
  • “I want a lender who cares enough to take the time to explain what the business could do better to get approval on a loan this time or even the next time around.”
  • “The loan officer liked what they saw in my loan application package and thought it would not be a problem to do something.  Three weeks later they told me the application had been declined for a number of reasons.”
How do we assist lenders and build trust with potential borrowers?  Many of the clients we work with are seeking their first loan or are expanding their business for the first time.   As a result, we need to do a better job of preparing clients to meet with lenders and present a loan request.   We need to make sure lenders understand the business, the market, the industry, and the loan request whether they are reviewing a business plan or a loan request summary.  

At the same time, clients need to understand the loan request, why they are applying, and how to use loan if approved.  We have found that first-time borrowers and even companies that have been around for a while need a refresher on applying for a loan, knowing what types of loans are available, how to use credit, and understanding the language of finances.  

SBDC Advisors spend a great deal of time educating business clients about finances and how to apply for a business loan in hopes of bridging gaps with lenders. 

How long will it take?
If we take all the assumptions out of the equation on both sides, there is more room for trust to be built and a relationship to start.

Expectations can be defined as “what is considered the most likely to happen. An expectation, which is a belief that is centered on the future, may or may not be realistic. A less advantageous result gives rise to the emotion of disappointment. If something happens that is not at all expected it is a surprise.”  

Do potential borrowers always know what to expect when they apply for a loan?  Based on the comments we received, there is some opportunity for improvement here.
  • “I should have asked how long the loan approval process was.  I submitted what I thought was a complete application and heard back from the lender three weeks later that they needed more information.”
  • “I was never told what the lender’s minimum capital and collateral requirements were.”
  • “My loan application was declined, but I never found out what the strengths and weaknesses were.  I guess a decline will always be a decline.”
  • “Why can’t they just give me the money?”
The SBDC has taken these comments to heart and we strive to assist our clients understand the loan process and the overall experience of applying for a business loan.  SBDC Advisors reach out to local lenders to identify the steps, the language, and the time frames they will follow when our clients are referred to a specific lender.  

This information is being used to put together an outline of questions for our clients to ask when meeting with a lender for the first time.  The more clients are aware of the expectations of the lender the more complete their application presentation will be and the experience has more of an opportunity to be a positive one.