Need Money, Think Like A Banker

By Greg Niemi . April 9, 2013

Do you need to refinance, restructure debt or get a new loan?  Then follow these three steps to think like a banker to obtain the financing you need.

To cut to the quick you will need to be clear about 1) how much you want, 2) how you will repay the debt and 3) what security will you give?Think Like a Banker

Too many borrowers do not think these matters through before they go to the lender (bank, private equity, family, etc.).

How Much Do You Want?

Your financier wants to know precisely how much you want and what you want it for.  Spell this out in a simple list.  Lenders like to see more tangible loan items yet they are also very receptive to operating loans to finance operations.

Do you want to borrow 100%, 80%, … of the value?  As basic as this advice may appear I have seen far too many be too vague too often with loan requests which sound like “I think I need …”.

How Will You Repay?

Most lenders will look to your balance sheet first for working capital, cash position and equity.  Next they’ll look to the income and cash flow statement(s).

You should have a good idea beforehand of the lenders loan terms:  interest rate, payment term and payment amount.  Rates and terms are commonly published on lenders websites and the payment amount can easily be calculated by using loan calculators also found on their website, in your desktop software or the internet.

Doing these calculations in advance helps you determine if the payments fit within your budget.  It also shows to your lender that you have thought this through.  Furthermore, be certain to share projections of any added income, profit, sales, price increases or other incremental upsides to further build confidence the cash flow will be there to repay?  Bankers like this.

What Security Will You Give?

When borrowing for a tangible asset it is reasonable to expect that asset will be pledged as collateral plus a UCC-1 will be filed.  However, what added security interest(s) are you willing (or not willing) to give?

Would you pledge additional fixed assets as security for this loan?  Or, pledge current assets such as inventories or accounts receivable.  Are there any debt covenants attached to this loan?  Is there already in place some general services agreement with this (or other) lender?  Lenders prefer not to be in the second secured position.  And/or, will a personal guarantee be required?

The more security you provide is not necessarily good news because the more security interest you need to provide the more insecure the lender is in the deal.


In summary, when borrowing be prepared to clearly answer 1) how much you want, 2) how you intend to repay and 3) what security you will give?

Have the answers written to these three items written down in a simple outline form which can be presented to your lender (along with having any supporting documentation along with you).  Clarity overcomes doubt.  Do not wing it, be prepared.

When you put on your hat to think like a banker you will improve your ability to obtain the financing you desire.

7 Responses to Need Money, Think Like A Banker

  1. Bill Raymond says:

    Great advice Greg. Answer as many questions you can proactively. Create a compelling storey to create excitement!

  2. Greg Niemi says:

    I invite my lender friends (e.g., bankers, credit managers and accountants) to comment on this blog. Would you agree? What additional suggestions do you have?

  3. Paul Poncin says:

    Compelling argument for planning ahead. Your ideas reinforce the notion that those the plan will get the funding they desire.

  4. Jeff Seltun says:

    Can not go wrong with that advice Greg. From a Personal Banker point of view, preparation is key. Banks are audited to ensure compliance with lending regulations. What seems easy is not always the case, preparation can help ease the process and aid in open dialogue between banker and consumer.

  5. Richard Pickren says:

    Well stated – keep it simple by focusing on 3 basic questions and then develop a well thought out plan that will build confidence in your lender that you will deliver.

  6. Dean Knutson says:

    Greg, great advise. Bankers want to be able to lend you money. The more prepared you are in the three areas you outlined, the faster you will get an answer and be able to move on to the next step. Bankers are evaluating more that just the numbers. The better an applicant can demonstrate they have a clear understanding of what they want, and how they will repay the loan the better it will go.

  7. John Kimball says:

    NIce piece Greg. As a 25 year commercial lender, I can tell you it’s all about cash flow sufficient to repay the loan – we look at that before we even open the balance sheet. Many good borrower’s balance sheets were decimated by the recession, but they’ve now developed a long enough pattern of cash flow to be financeable again. Know ahead of time whether your business has historically generated sufficient cash to repay the loan or if you need to make a case that future increased cash flow (projected) will be needed to repay. If it’s projected, be realistic – we’ve got a whole room of historical financials from similar companies to compare yours to. Frankly, we don’t need to show you’re going to hit the ball out of the park, only that you have sufficient cash flow to make all loan payments leaving a bit left for reserve. Banks are lending again – but successful borrowers learn how to “think like a banker”.

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