Debt vs. Equity Financing

Find the Right Lender

Taking the time to search for the right bank or lender may mean the difference between business success and failure. A good banker can not only provide the short- and long-term financing your company needs; he or she will be a source of networking opportunities, contacts, and professional advice.

And unlike investors or partners, a good banker won't interfere in your day to day operations. While they do want to be repaid, bankers and lenders do not receive the right to make decisions for your company in return for extending financing − although that may not be true if you default on a loan, of course. But a banker who knows your industry, your market, your business, and other influential members of the community could help your business not only to survive but also to thrive.

If you find the right lender, that is.

Start the Search

When should you start looking for the right lender? Ideally, before you ever need one. When you are desperate you have fewer options; start looking while you have time to find the ideal "partnership." Look for:

• Experience providing loans to businesses like yours
• Services and lending options your business needs
• Referrals from friends and colleagues
• Participation in Small Business Administration or other government-backed loan programs

Also ask about each bank's standard operating procedures. For example, one bank may process credit card transactions and place those funds in your business account within three business days; other banks may complete the process in two days or less. (The longer it takes for processing the longer it takes for you to have access to those funds.) Ask about how long it typically takes for deposits to be available for withdrawal, the average loan approval period, and web-based banking options.

Make Your Choice

Once you've narrowed down your list, start interviewing potential lenders. That's right; while you may someday need a loan, for now consider yourself the "boss" and look for the right fit. Find out:

• With whom specifically will you work, one individual associate or a group? In short, with whom will you deal on a regular basis?
• What skills and experience does the individual bring to the table? Will your relationship be transactional in nature, or can you count on additional advice, guidance, and support?
• What networking possibilities does the banker bring to the table? Is he or she a member of local organizations?
• What is the individual's "bedside manner"? Do you feel comfortable talking to the lender? If times get tough, do you feel you will be treated with courtesy, dignity, and respect?

The banker you select should have the right combination of skills, experience, and bedside manner to suit your business and your personal business style.

Grow the Relationship

Once you've made a decision, keep going! Help your banker better understand your company and your business:

• Provide a copy of your business plan. Ask for input and guidance. Ask what steps you should take to improve the credit-worthiness of your company and improve your chances for loan approval in the future.
• Provide a preliminary copy of your loan proposal. Remember your banker may not have the final say on loan approval; ask how your proposal could be improved so the people making the final decision will have the information they need to make a good decision. And if you don't have a loan proposal currently in draft form, ask for help getting started. Someday soon you'll probably want financing….
• Ask for referrals to other businesses you might partner with (or even provide with goods or services.) Your banker should have a lot of local and regional contacts; ask for help. It is in his or her best interest for you − and for others − to succeed. So ask!
• Ask about products or services that can help your business. The bank you choose might offer special financing options, business credit cards, credit lines, bundled financial services… in short, ask how the bank and your lender can help your business succeed.

In closing, remember that a good banking and lending relationship is like any other relationship: It thrives on open and honest communication. Things won't always go as you plan, and when negatives pop up, let your banker know. Avoid surprises; give your banker a chance to help you overcome problems and roadblocks.