Forget about government solving it — solve it yourself — the old fashioned way — work at it.

 

The primary problem is not a lack of available money; rather it is a lack of willingness on the part of banks to extend credit to small businesses. Key to fixing the problem is to understand the underlying causes of that unwillingness — and address them.

 

At the core of the problem, bankers are a conservative lot, even more conservative than they were a few years ago. That conservative nature is further complicated by the fact that few bankers have any substantive knowledge of your business—  they are bankers not manufacturers. One of the key functions of bankers is to assess risk; being conservative by nature and unfamiliar with your business yields an obvious result.

 

We need also to look at the other side of this “relationship” — you — the small business owner. Generally you tend to be an entrepreneur in a privately held company. First, entrepreneurs are not given to large amounts of conservatism. Secondly, entrepreneurs often know even less about the banking business than the banker knows about the manufacturing business.

 

Additionally, non-public companies operate without the accounting regulations and controls that apply to publicly held companies; further fuel for the conservative nervousness of your banker.

 

Once you understand the influences that might cause your banker to not be your partner and cheer leader, you can begin to build the bridge that will allow the two of you to work more cooperatively to your benefit.

 

The first rule for building that bridge; keep your banker close. Bankers don’t like surprises — so commit to not surprise him. As an example, if you see a downturn in cash flow, call your banker before it happens. That call tells your banker you are on top of financial issues.

 

Assuming you have an outside accountant, bring your accountant into this “partnership”. They have a natural “kinship” with your banker; leverage that to your advantage.

 

Learn to speak banker’s language, show him you have an understanding of what is important to him — and that means you can talk the walk — in his terms.

 

If you are asking for money to expand your business or purchase new equipment, present a business plan to him in terms that he can understand. Demonstrate that you are approaching decisions based on sound financial analysis and not simply “gut feelings.” In fact, “gut feeling” and “shooting from the hip” are best not mentioned around your banker. Those are not terms of humor or endearment for your banker.

 

Next month we will go into the mechanics of building an investment case that you can create on your own. I will give you the tools to calculate return on investment (ROI), payback, cash flow, net present value (NPV), declining cash flow and internal rate of return — and favorably impress your banker by speaking his language.

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