Borrowing from a bank today is very difficult. Even before this financial collapse pawnbrokers have always had a rough time borrowing from a financial institution. Most of you have had to borrow from family and friends. Some of you have found money from hard money-lenders, although helpful, it is usually a pretty expensive cost compared to what banks charge. Do banks want to lend you money today? YES THEY DO!!!
There are two reasons why pawnbrokers can't borrow. The first reason: the borrower doesn't know how to present a proper proposal to the banker. The second reason: the bank doesn't understand the pawn business. At some banks, their policies prohibit lending to pawnbrokers. The typical time people give up is when the borrower is required to do both tasks. We expect the bank to know. Yes, you have to educate the banker. This is a very important because you have to find someone that works for a bank that wants to listen and learn. Make sure that you invest in someone that believes in you and likes you, because this will be huge time investment for both parties. I promise you though; it will be a game changing accomplishment if you open the door to regular banking. Today's cost of capital should not exceed 2% over prime rate. Your cost of capital can eat up all of your profits at the end of the year. My traditional banking relationship saved me millions of dollars and allowed me to expand my business beyond what I conceived was available for a pawnbroker. Bottom line: banks like businesses that make money.
Most banks like to see the same information. The information is a timely financial statement. First ask your banker what format he or she prefers. You provide exactly what they request, but also provide detail and substantiation behind the statement. Three statements are required: (1) Income, (2) Balance, and (3) Cash Flow statements. You need to use a credible accounting firm. Your banker can give you list of names. Yes it will cost you more for your statements, but it will save you the big bucks later and don't forget to negotiate with your accountants. Banks handicap the rate they charge based on the credibility of your financial statement.
Do you understand what the true meaning behind a financial statement is? 90% of business owners don't. This is the single reason that small businesses can't borrow money. Spend time with your accountant and ask him what these statements mean in detail. Be relentless with questions. Pick up for small business for dummies book. Here are some other resource articles.
There are two reasons why pawnbrokers can't borrow. The first reason: the borrower doesn't know how to present a proper proposal to the banker. The second reason: the bank doesn't understand the pawn business. At some banks, their policies prohibit lending to pawnbrokers. The typical time people give up is when the borrower is required to do both tasks. We expect the bank to know. Yes, you have to educate the banker. This is a very important because you have to find someone that works for a bank that wants to listen and learn. Make sure that you invest in someone that believes in you and likes you, because this will be huge time investment for both parties. I promise you though; it will be a game changing accomplishment if you open the door to regular banking. Today's cost of capital should not exceed 2% over prime rate. Your cost of capital can eat up all of your profits at the end of the year. My traditional banking relationship saved me millions of dollars and allowed me to expand my business beyond what I conceived was available for a pawnbroker. Bottom line: banks like businesses that make money.
Most banks like to see the same information. The information is a timely financial statement. First ask your banker what format he or she prefers. You provide exactly what they request, but also provide detail and substantiation behind the statement. Three statements are required: (1) Income, (2) Balance, and (3) Cash Flow statements. You need to use a credible accounting firm. Your banker can give you list of names. Yes it will cost you more for your statements, but it will save you the big bucks later and don't forget to negotiate with your accountants. Banks handicap the rate they charge based on the credibility of your financial statement.
Do you understand what the true meaning behind a financial statement is? 90% of business owners don't. This is the single reason that small businesses can't borrow money. Spend time with your accountant and ask him what these statements mean in detail. Be relentless with questions. Pick up for small business for dummies book. Here are some other resource articles.
- How to read a Income statement.
- How to read a Balance sheet.
- How to read a cash flow statement. The most important!
One last side note. When reviewing your statements: if you see results that don't look good/correct, ask the accountant the how's and why's. You will find that your business may be turning the wrong way. Statements are incredibly revealing. Use them, appreciate them, and gain from them.
I have banked with several institutions. My financial reporting evolved over time and I made modifications as the bank suggested. I eventually went with fully audited financial statements. As your credit limit rises, the bank will strap on further requirements. Banks don’t care about you just because you pay and are a long-time customer. In fact, it’s bad business. Banks make loans because they want their money back. If something changes and their confidence dissipates, expect the call.
As long as I was borrowing at a competitive rate, (which was as low as .30 percent over LIBOR rate), I was a happy guy. Remember that when banks get stuffy or demanding, it is usually perpetuated from outside forces. This is very prevalent today. Go with the flow. Solid reporting is the key to running your business well. Help your banker make his case.
If you are not showing a profit on your statements, don’t go a banker and ask to borrow money (even if you are actually making a lot of money). Why? It’s illegal. Even more? It sends a message of dishonesty. Which means? A waste of time for everyone involved.
This advice will get you 80% to the finish line. BRAVO has proprietary reports that will get the rest of the way. We have included all of our reporting tools that we used, which will enable you to provide bankers with instant information, which will add an extra layer of due diligence that the banking community appreciates. Bankers show their appreciation by charging you less. They will also put you in the driver’s seat when you need to borrow.
So, go get started! Set up your banking relationship and get the same benefit that all other businesses have access to. You have the information—go grow your business.
