Tips For Securing Bank Financing

Myths

  • I can just get an SBA loan.
  •  SBA loans require no money down.
  •  Special interest groups get preference in obtaining financing.

Find the Right Type of Bank

  • The Big Banks- regional, super regional.
  •  Small Banks- community banks

How much can the bank lend to one borrower?

  • What type of loans do they like?
  • What are the repayment/facilities terms?
  • Term Loans: 5-8 years.
  • Revolving Credits: 3-5 years.
  • Bank Evaluating Issues
  • Accessibility- Who do you talk to after the ink is dry and a problem comes up.
  • Getting a loan over the phone or through a web site is fine, until a problem occurs.
  • Wide Range of Capabilities- Does the lender offer the full range of financing services to meet your future needs in areas of expansion, acquisition, or even a change of direction?
  • Resource Sizes- Does the lender have the financial resources and the lending flexibility to meet your needs as your business grows?
  • Credit Decisions- If the lender able to understand your business taking into account your total picture including the business potential.
  • Commitment- Is the lender prepared to support your business regardless of economic fluctuations?

Presenting A Loan Request

  • How much do you need?
  • What is the money going to be used for?
  • Why is this good for your business?
  • When and how will you pay the loan back? If you are requesting a loan to finance an acquisition, is there enough existing cash flow to make the loan payments? If not, when and how are you going to make those payments?
  • Understand money flows only when the risk is zero.
  • The bank is looking for high yielding low risk assets. * What if your plans don’t work out?

Bank Etiquette Tips

  • Go in recommended.
  •  Deal directly with the person who will handle your loan.
  •  Never pick a bank, always pick a banker.

Get to know your banker and his bank- Establish a relationship.

  • Understand the bank’s approval process.
  •  Go in prepared. Have your business plan prepared. Understand each plan is unique.
  •  It is impossible to give the banker too much information.
  •  Practice answering the single most important question- how will I repay the loan?
  •  A short No is better than a long No.
  •  Look out for yourself.
  •  Everything is negotiable.
  •  Prime or Base rate?
  •  Bankers hate surprises.

The Six “C’s” of Credit Evaluation

  • Character.
  • Capacity.
  • Conditions.
  • Collateral.
  • Capital.
  • Cash Flow.

The Venture Capital vs Banker Route

Banks

  • The emphasis is on collateral.
  •  Control with covenants.
  •  The Ratio Analysis based on a leverage ratio.
  •  How will the bank get the money back. Insufficient cash flow = No loan.

Venture Capital

  • Emphasis is on sales and customer need.
  • Control is exercised through seats on the board.
  • Projected value of stock is key.
  • Expected return to investors.
  • Understand, going in, what happens if you don’t make your numbers.

Need help with a deal financing issue? We’re the experts. Call Grimes, McGovern, & Associates today.

 

Grimes, McGovern & Associates provides expert advice during all phases of a transaction. Contact us today for a confidential consultation: John McGovern, CEO, jmcgovern@mediamergers.com, (917) 881-6563 or Julie Bergman, VP, Newspaper Division, jbergman@mediamergers.com, (218) 230-8943.

 

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