If you could provide one piece of advice for businesses seeking capital, what would it be?
Understand the difference between “Capital” (Equity) and Debt (borrowed funds). First you have to Earn Money; then you have to save money; then you can invest money, and if you choose, you can leverage that investment by borrowing some multiple of your own investment. Don’t try to borrow when you have no personal equity invested.
When it comes to building a relationship with a banker, what is the first step in the process?
Get to know your banker, and ask whether s/he truly understands your business. What is your business model (How do you make money?) What is your cash flow cycle? What factors will be significant to your success? Your best relationship will be with a banker (or any other advisor for that matter) who understand the critical issues facing your business. Start building a banking relationship years before you need to borrow.
What is the outlook for bank financing?
Companies that have equity can borrow a multiple of that equity. Companies with assets that can be pledged as collateral (or owners who can provide collateral) will be judged favorably by bankers. But note that banks have different tastes for collateral. Many prefer real estate, while others are comfortable with accounts receivable, inventory and equipment. Companies with positive cash flow can borrow based on their ability to use that cash flow to service the debt. Companies with strong leaders will find bankers who want to do business with them. Conversely, companies that have too little equity or not enough assets, poor cash flow, management problems, poor credit scores, won’t be able to borrow, and they shouldn’t.