Business Sphere

     I have three clients who have been trying to borrow money from the banks where they have accounts, but they told me the banks are asking them a lot of requirements before their loan applications could be approved.

     They are worried now, because they respectively need the money as additional capital for their businesses. One client is into construction, with two new building projects but short of cash, another is operating a corporate farm raising high value crops, while the other is engaged in a medium-sized piggery business for the domestic market.

     One of my banker-friends, a vice-president of a large commercial bank, explained it to me that it is their usual practice to constantly evaluate their clients and their clients’ businesseses. In short, when they evaluate you, they examine not only your financial statements, but also other things about you not related to your business performance.

     By coincidence, today I came across an article by Thomas E. Bennett, Jr., a top rank bank executive, entitled “Mixed Signals” which discusses how banks evaluate their clients. Bennett the banker says that while your business may be prospering, you may be sending signals that say just the opposite. He then runs down some signs that attract negative attention from bankers, as follows:

     1). You show up on the wrong lists.  Most bankers review daily lists of checks drawn on uncollected funds, overdraft accounts, and large transactions. If your account regularly appears on these lists, we wonder if you’re out of cash, kiting funds, or otherwise headed for trouble.

     2). You act as if you are hungry for cash.  When you frequently request small loans to cover incidental expenses, we begin to assume that your company isn’t generating enough cash. Or when your financial statement shows a large net worth and a small amount of cash, we worry that your debt service may be exceeding your cash flow.

     3). You make one change too many.  Should we find out through the grapevine that you’ve replaced your key adviser, we get suspicious. We expect you to tell us of major changes, and when you don’t, we’re apt to wonder if you fired your adviser because he was telling you things you didn’t want to hear.  Also, when you change your mind too often in your dealing with us, you leave the impression that you’re out of control.

     4). You look a little rough around the edges. When bankers evaluate the risk of  a loan, we take a long, hard look at the borrower’s character.  We worry about any changes in behavior that suggests substance abuse, gambling, abrupt changes in marital status -or any signs that may be caused by a problem in your business.

     If your company begins to look rundown, chances are someone from the bank will notice. It will seem as if you are either not paying attention to the details of running your business, or that you don’t have money for basic maintenance. You may begin to look like a riskier client.

     Knowing these tell-tale signs that banks look for in their clients, especially when applying for a loan, will make you strive to maintain good relationships with the bankers. This way, you can re-orient your priorities and develop a good business image, so that next time around, your loan application will be approved, without really trying.