Every small-business owner realizes how important it is for the company to be "bankable," but many are unsure about what that means.
Being bankable simply means that you've persuaded a conservative banker that you have the financial stability and cash flow to repay the money you borrow -- plus the interest.
It's no surprise that business bankers are especially skittish these days. They are under intense pressure by state and federal regulators to clean up their loan portfolios and lend money only to the most stable, thriving customers.
But don't despair. There are ways to make your business more bankable, and the first step is knowing what a banker looks for when considering a loan application.
Gloria Lissner, founder of Famous Fido's Specialty Foods Inc. in Chicago, recently got her first bank loan after funding her gourmet pet food company with money borrowed from friends and accounts receivable financing. Her $338,000 loan from Uptown National Bank is backed by a U.S. Small Business Administration loan guarantee and will enable her to set up a bakery to expand production.
"Gloria was well prepared from a financial and marketing point of view and very receptive to our ideas and suggestions," said Steve Olson, assistant vice president of Uptown Bank.
Mr. Olson, who handled Ms. Lissner's loan, suggests that small-business owners view their banker like any other customer.
"Selling yourself to a banker is no different than selling to a customer or client," he said. "You are selling them on your financial ability to repay."
Mr. Olson's comfort level increased when he reviewed Ms. Lissner's impressive marketing plan and financial statements. "We have to understand your business and decide to be your silent financial partner," Mr. Olson said.
Erica Pascal, an attorney who formerly worked for South Shore Bank, helped Ms. Lissner prepare her loan package. Ms. Pascal, who specializes in helping small-business owners apply for loans, said Ms. Lissner had a wonderful marketing package and tremendous growth but that her financial information was weak.
"Because I had worked for a bank, I could very well understand why a banker would look at Gloria's company and say, 'Gourmet dog treats during a recession? Would I want to do this deal?' " Ms. Pascal said.
But by October, Famous Fido's was drowning in orders and Ms. Pascal was confident the company would generate enough cash to repay a loan.
She warns entrepreneurs to beware of "sharks" who prey on business owners by promising to prepare winning loan applications for a fee. She said there are no guarantees and you shouldn't believe anyone who promises to get you a loan.
Now is actually a good time to approach your banker about a loan. Interest rates are low, and state and federal officials are pressuring bankers to enforce provisions of the federal Community Reinvestment Act, which requires banks to serve all sectors of their community, including needs of low- and moderate-income people and small-business owners.
Mr. Olson, Uptown Bank's community reinvestment banking officer, said the fact that Ms. Lissner's bakery eventually would create about a dozen jobs helped.
Ms. Lissner, a former dog groomer, built her business around her belief that too many American pets are malnourished because they are fed unhealthful food. Working with nutrition experts, she developed a line of snacks containing no meat, animal fat or chemicals. The snacks, sold in pet stores across the country and even in the Bloomingdale's catalog, resemble bagels, brownies and cookies.
Meanwhile, Ms. Lissner is buying baking equipment and preparing to expand her business to include licensing agreements that will promote Fido as a character similar to the Ninja Turtles. She also sells snacks from 250 pushcarts and kiosks in shopping malls nationwide.
Ms. Lissner and her dog, Fido, adopted from an animal shelter, also host doggie birthday parties in the deli, surrounded by 300 varieties of pet treats.
With sales approaching $1 million, Ms. Lissner knew she was ready for traditional bank financing and ended up with an SBA-guaranteed loan.
"Years ago, I went to a bank, and they didn't take me seriously," she said, laughing. "Come on -- a girl making dog cookies! What is she: Crazy?"
Speaking of loans, the SBA is pushing its new "micro loan" program in 30 states. The program will provide money to non-profit lenders to pass along to women, low-income and minority entrepreneurs, and others who need a modest amount of money to jump-start their business. The loans range from a few hundred dollars to $25,000.
Congress appropriated $15 million for fiscal 1992 for the program. Contact your local SBA office for information.