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Is a Bank* God?

*(Note: I use the terms "bank" and "lender" interchangeably in this article for ease of reference. That is not to say they are identical in their business offerings.)

Some people are convinced that a lender's (or bank's) criteria for approving a loan are a great mystery. These criteria aren't truly a mystery, but they do vary among lending institutions and lending officers. All banks and lending institutions have their own criteria for approving small business loans. Certain large institutions refuse to deal in small business loans because of the risk factor (small unknown business vs. large successful business). Why take a higher risk when they already have plenty of blossoming low-risk clients? Other institutions take pride in their work with small businesses, considering themselves to be the cornerstone of the local commerce. You may find them not only sources of working capital, but also invaluable sources of advice for dealing with the ragged cash flow that small business is prone to suffer. This is what many advisors mean when they tell you to "find a good banker."

The primary thing to keep in mind is that all banks and lending institutions are businesses, too. They are working just as hard to make a profit as you are. They have loads of government requirements to attend to and document. It's been documented that at least 14% of the overhead at lending institutions is directly attributable to keeping track of government requirements. They are a highly regulated service. But keep in mind that they don't owe you any service whatsoever. Nor do you owe them your patronage. Should you purchase their services, it is a mutual agreement based on your needs and the services they offer. Nothing more.

It's easy to feel victimized by banks and lending institutions because they seemingly have so much power over us. In reality, however, they have no more power over us than does a maid service. They offer services. We can choose to accept them or decline them. There are always choices. There are other lending institutions (or maid services) that we can consider. If the service and personnel at Bank A makes me grimace every time I walk in, then it is prudent for me to look at the options at Bank B, just as I would consider using Maid Service B over Maid Service A because the personnel at Maid Service A make me grimace and I loathe having them in my house. Of course I can even do the housework myself (and I do!). Accordingly, you can choose not to use banking services (It's amazing what you can do without a checking account!). I pay for the occasional service of having my carpet cleaned, or perhaps a room painted, but I do not have to pay someone to do everything.

Okay, it's easy to convince yourself that you really need a bank or a lender, and often you do. I don't mean to imply that you should do without banking services (They're pretty handy to have around!). Instead, you should decide exactly which services you need, and then find the best provider of those services. On this website you will find a number of options for finding the money you need to start or continue your small business. If you really believe that it is going to be difficult to find the funding you need to start your business, then it probably will be. I'm not saying there is no work required or that the path is always easy. There are those who maintain an attitude of resignation that a lending institution (or anyone else, for that matter) holds power over them. Those individuals like to convince the rest of us that we'll never make it - that the path is too hard.

There are those who know that lending institutions hold no power over them - that they will succeed in their chosen endeavor because, 1) they hold themselves in high esteem, 2) they know there are always alternatives, and 3) they go into the business prepared.

The first two reasons for success that I mentioned above are mindsets for you to consider. You decide for yourself what is possible or impossible. ("The impossible takes a little longer." - Aurobindo) I offer them to you as alternative ways of thinking. The third item, however, is not to be overlooked if you really want a loan and really want to succeed. Preparation is key. The type of preparation I'm speaking of applies to knowing your business inside out as well as being able to communicate clearly in documents and orally the substance and high success chances of your business.

The first thing to do is write a business plan. The place to start is to ask yourself a lot of questions. Here are some tools to use to enable you to explore your own mind and motives and then move along to the next steps in the evolution of your business:

Pros and Cons of Being Your Own Boss
Are You Ready To Be Your Own Boss?
Business Plan Tutorial

Above all, keep in mind that banks are in business to provide a service. Treat them that way and keep in mind that they are working for you. If their service displeases you, find another bank or lender. Make sure that you are comfortable with the people as well as the service. And, most important of all, make friends with the people you meet at the bank. When you realize that those folks are people just like you, working just as hard for their money as you do for yours, you'll be able to deal with them in a more sensible fashion. Plus, it's always nicer to have a friend looking at your loan request than a "cold dispassionate bank officer", now isn't it?

-Anna Kris Bell