International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting How To Get Your Banker To Say 'Yes' By Ravi Singh Mehta Banks in the U.S. are often characterized as reluctant to lend. No bank anywhere, however, is reluctant by its nature or policy to lend. Rather, it is the weaknesses in your loan case that may make a bank reluctant. The weaknesses may give the indication your business may not be able to repay, and it is this indication that makes the bank reluctant. So you must prepare a loan case or business plan that convinces the banker there are good chances to repay, and that in case the repayment suddenly stops due to unforeseen reasons, there are good chances to recover the dues/overdues from your business. Begin your pursuit for a bank loan by following the first principle: Select a suitable bank. Then the second principle: Make a loan case suitable to the bank. For selecting a suitable bank, there are two steps: Collect information from and about the target bank; and process the information to arrive at a decision whether the bank suits you. For collecting kinds of information, you should review: Bank profile Approach to lending Terms and conditions relating to lending. Know the bank. Know its lending approach. How? There are two ways: Read the bank's annual reports, brochures, directory. Meet the bank officials. Process the information by using a question-and-answer approach addressing the following points: Location.Is the bank located within a manageable distance from your business? Financial position. Whether the bank is financially sound. Management position. See whether the bank is professionally well-managed. Schemes. Whether the bank has suitable/requisite loan schemes and services. The loan schemes you need depend on the international payment methods you propose to use. There are four international payment methods: Cash in advance Open account Letter of credit Documentary collections Once you find a suitable bank, you should prepare a business plan - don't go to the bank without a business plan in your hand. In preparing it, keep in view the bank's lending approach. The approach is summed up in a set of lending norms - the objective of which is safe lending: Character of your business; the bank will judge this from a latest credit report. Your professional ability to run the exporting business; the bank will judge this from the business plan you submit. The bank may not finance the full cost of an exporting transaction or of a fixed asset. Therefore, the bank will see in your business plan whether your business has the capacity to finance the difference. Whether the purpose of the loan is viable and conforms to U.S. trade regulations. Adequacy of loan amount. The bank will judge your repayment capacity from the international payment method you propose in the business plan; from export risks management measures you propose; and from projected cash flow - the riskier the payment method the lower the repayment capacity, the lower the repayment capacity the greater the reluctance to lend. The safest payment method that can strengthen your case for bank financing is irrevocable letter of credit. The safest payment method makes the banker think that lending would be safe and therefore he may get ready to finance on this point. Your plan must convince the banker that lending to your business is safe. Insurance against uncertainty (collateral) will be judged by the bank from the tangible asset position of your business, which you include in the business plan. When preparing a business plan, include the following: A brief history of your business. An export marketing plan - your strategy for getting export orders and for getting paid. The plan must convince the banker that your product is saleable and payable and that you have both marketing and risks management skills. Export administration plan will show that you have skills and arrangements for executing orders, for efficient delivery, for error-free documentation, and for credit management, including overdues collection. Poor administration means poor chances for the bank loan. The financial plan will show sources and uses of funds; the plan should clearly indicate whether bank funds are required for use as working capital in export transactions or for acquisition of business-related fixed assets. As regards working capital finance, tell whether you need both pre-shipment and post-shipment finance. In the plan, also include the services you need, such as back-to-back credits, standby credits, documentary collections and hedging facilities. The business plan must aim at: Getting export orders continuously and their efficient execution. Getting paid. This is the crucial part of the business plan, which the banker will give importance to; remember, if international payments are not safe, bank financing is not safe and, therefore, no bank will finance. International trade regulations compliance. The business plan must convince the banker: You have ability to run the exporting business, that is, you have ability for both export marketing and administration. Your business has good chances for increasing export sales/earnings with the help of bank loans and services. Business performances will be well monitored and controlled - no bank will finance if your business lacks planning, monitoring and control. All export receivables will be well protected against both commercial and political risks, as well as foreign exchange risks. Your business has the capability to repay the loans taken against export receivables in case they are not paid. Your business has the capability to meet the collateral condition. Ravi Singh Mehta is a certified trade specialist and manager of international banking and trade finance for Punjab and Sind Bank (India). He is a member of the International Trade Association and the Institute of Export. Advertise on this site Put your company on this site!