Getting More Capital Out of Your Bank
Growing companies often struggle to get enough capital to grow the way they want. Its not uncommon for business owners to wine and dine their banker then ask for a credit increase and be denied. A way to change that dynamic is to go out and shop for a new lender. If another bank is willing to provide a bigger credit facility, there is a good chance your existing bank will step up and match the other offer (saving you the trouble of changing banks). I’ve seen this play out more times than I can count.
The reason competing offers are often necessary has to do with risk and return.
The personal relationship you have with your bank is likely with your relationship manager or loan officer. She would love to lend you all the money you need but when she goes to pitch your increased capital need to the credit manager, it gets denied. The reason is the credit manager’s primary job is minimizing risk and when banks make relatively low margins on their loans, typically 4-6% in today’s market, they rationalize its not worth increasing their exposure for the increase in potential revenue. This is particularly true for growing businesses which are usually viewed as more risky than a slow growing, cash rich company. Banks love lending money to companies that don’t need it.
However, by going out and getting financing offers from other banks you change that dynamic. Now the bank is much more willing to rationalize that credit increase because the motivation to retain a customer can be stronger than stretching for extra growth. Also, securing proposals from other banks also validates the risk of your business is acceptable to other banks.
So if you want additional capital from your bank and they say 'no', don’t give up just yet – go out and show them other banks will give it to you and chances are your bank will too. If you want talk about this topic further or want help getting this offers, let us know - we can help!
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