If you are in need of new credit or re-financing for your business, stop, and really consider what the lenders are offering you. Money is a commodity, and lenders should have to earn the right to present their commodity to you.
It’s no secret that the interest rate a lender offers you is determined by your credit score, strength of your balance sheet, and your financial performance. Typically this interest rate is going to be about the same from lender to lender. What many business owners fail to recognize is that the interest rate of a loan should be secondary to the overall relationship. Services, opportunities and ease of reporting should carry equal weight to interest rate.
Assuming all things are equal, that your financial results are consistently positive, the cost of money from ABC financial institution versus DEF financial institution will be similar. The actual interest rate, for your business, should be one factor to consider. Not the sole factor.
Other considerations should include:
- Frequency of reporting: How often you are required to provide financial information.
- Required ratios or covenants.
- Networking opportunities: Is the lender willing to connect your business with other customers in their pool?
- Revenue generating opportunities: Financial institutions spend money too!
I have a client right now, in the construction business, who shifted his entire banking relationship to a new banker because they committed to him that over the next ten years, they would be building “X” number of facilities, and they wanted him to handle a portion of that construction. By living up to their word, they not only gained a new customer, they also secured their investment in his business, helped him grow, and built a mutually beneficial relationship.
On the flip side, be weary of the financial institutions with overzealous financial reporting requirements or ratios, and demands that inhibit your ease of operations. You want as little reporting as possible, and the more demands a financial institution puts on you, the less you should like that institution. It has nothing to do with the cost of money. Also, avoid personal guarantees like they are malaria!
You can borrow money from anywhere, anytime, and anyplace, and unless you are in a serious pinch for money, and the loan sharks are your only option, you should be selective with your next lender. Their job is to provide credit. Your job is to make that credit as cheap as possible, get the best ROI, and make that agreement beneficial to you, as the borrower.
If your balance sheet is strong, your income statement has been consistent, the business is growing, profits and cash flow are good, then all the banks are going to line up to lend you money. Whoever gives you the best, easiest, most cost effective way to do business, is who you want to do business with. Don’t be shy asking for business; they’re asking for yours.