In February of 2014, I wrote a blog post titled “Financing a Small Business: 4 Items to Remember.” Over the last few weeks I’ve expanded on those 4 things, and today the series concludes with a bonus 5th item that came to me later.
“Be careful what you say to the banker.”
Or put a little more bluntly: “Know when to shut up.”
Here are a couple of real-world examples I’ve seen where business owners got hung up with the bank because the owner wouldn’t stop talking.
One: I’ve Gotta Have the Money. Actually, I Could Get By Just Fine Without It
A business owner goes to the bank to get a loan for equipment he says he “has to have.”
In the course of the conversation with the banker, the owner goes on and on … and on and on and on … about how successful his business has been.
This is not necessarily bad. Business owners should be enthusiastic, and those of us who are entrepreneurs want to share the excitement of our successes.
The problem here was, the owner used this as a springboard to talk about financial success, which led to the owner saying he didn’t really need the loan, he could just pay cash for the equipment, but the loan would be nice to have.
And then he continued to talk and said that if he couldn’t get the full amount, he’d be happy with a smaller loan. And then he continued to talk and said again that he could get by just fine without the loan, but that it would be nice to have.
The banker had a good question: if you don’t need the loan, then why are you here? The owner fumbled around and finally said something about wanting to build credit. But the momentum was lost.
In the end, the owner withdrew his loan application and never did buy the equipment.
Two: I Can’t Make a Down Payment, But I’ve Made a Lot of Money!
A person goes to the bank hoping to get a quarter-million-dollars of startup financing.
Problem: the person had no money for a down payment.
But they went on and on and on to the banker about how, in their prior self-employment ventures, they made hundreds of thousands of dollars in a short period of time.
The person was bragging about their ability to work hard and make money. They thought they were building a case for getting the loan.
The bank didn’t see it that way.
After the meeting, the banker told me it would have been better if the person had not bragged like that — because the logical question is, if you’ve made so much money, why is your down-payment $0?
The bank rejected the loan application for a variety of reasons, but the person’s boasting didn’t help the cause.
We all want to tell about the triumphs of our businesses. But when you’re talking to a bank, less talk is better.
Give them the information they need, answer their questions, but don’t talk so much that you come across poorly and make life more difficult for yourself.