Banks! What You Need To Know!
OK here's the story with me and banks
WE DON'T GET ALONG!Never have, never will.
They suck. You know why?
Because they are not businessman! SURPRISE!!!I have said in an earlier entry. A bank's loan department should be made up of 2 types of people. Banker number crunching people and experienced entrepreneurs that actually understand the realities of running an actual business on a daily basis. Unfortunately.........you are forced to deal with a loan officer whom I compare to Dr. Jekyll & Hyde!
|HI I am your loan officer!!!|
They don't have a clue about what you face on a daily basis, you know why?
Because you don't know what you are going to face as a business owner! That's the flat out truth!
So, what do you do? You need the money they lend, right?#lendingadviceforbusiness
Yes you do. If anyone is growing a business they need a line of credit.
Now usually that is what banker's like to call an "Asset Based Loan"!
I call it SUICIDE!!!
Yup, good old lead belly suicide! An Asset Based Loan huh? Well let's break this down, shall we?
Ok. So your assets at "book value" are say $500,000. Well they will probably give you 20% of the value of them. Hmmmm.. interesting, because they actually make the product your selling, you'd think they would be valued more than that? Well no. Because all they are looking at is if you fail and you will, what is the bank going to get on the dollar if they sell your assets?#smallbusinessloans
Hello welcome to America!!!
So, let's go down the line, then there is your inventory. You know the goods that you made that you are going to sell to an ever growing customer base at 38-58% Gross Margin!
Well ok buddy! The bank will give you, ummmmmmmmm.... well, uh, 40% of the total value of that??? HUH???
And then there is the almighty receivables!!! Oh lordy, those people that want to pay you, but sometimes they just can't because they are business people too, and things come up!
I can remember when my business landed Trader Joe's. It was a huge deal for us. My accountants were pushing me to secure an asset based loan, the reason being simple cash flow ebbs and flows.
I begrudgingly listened to them, and took one out. My paper napkin cash flow analysis told me I didn't need one, because we had the margin to cover the increased inventory, receivables etc that comes with a small business taking on a huge customer. This is very rarely the case.
My loan officer used to show up about every 2 or 3 months begging me just to tap the Line of Credit, for no reason, just to use it!
He was telling me we were making him look bad! I'm sitting on the other side of my desk thinking, this guy doesn't care about my business, all he cares about is how much the bank will make when I finally tap into that line of credit with the prime + 1 1/2% interest rate!This graphic kind of reminds me of him, but don't they all look this way?
Well let's just cut to the chase here! Enough with the sarcasm right? WRONG but there is a time and a place for that.
Ok here goes. The best FREE advice you are ever going to get, and I hope you remember where it came from!!
Whenever a business, hello you guys and girls!!! Have to take out an asset based loan, you better put the following wording or something very close to what is below, in the final document!!!
"If for any reason (YOUR COMPANY) falls out of formula during the term of this loan. The bank will grant (YOUR COMPANY) 90 days to get back into conformity without action from the bank. If in that time, (YOUR COMPANY) finds that it can't secure favorable terms with another institution then it is at its discretion to notify (THE BANK) that it would prefer to turn the existing lending vehicle into a mutually agreed upon term loan, at a mutually agreed upon term and interest rate."#assetbasedloans
You might also want to consider that, "if the 2 parties cannot reach an agreement on the interest rate and term of the converted loan, the company has an additional 60 days to secure financing from another institution." CYA! Don't put the CYA in the document. Hey a little humor is needed sometimes.
Do it!!!! PROTECT YOURSELF AT ALL COSTS!!!
|OK Banker! Put em Up!!|
Thank me will ya?
Haha. Guess I don't have a vocal audience...
Oh well, I hope you use this!!
Go In Swingin! Always have a way out that is favorable to your company.