How to Approach Your Banker When Buying or Growing Your Business

How to Approach Your Banker When Buying or Growing Your Business

If you are seeking funding to expand your company organically or acquisitions, buy another company, or buy out a partner or co-owner, here are some steps to take to locate both a lender who is willing to provide you and/or your company with the financing and to identify equity sources that may be a good fit for your small or medium business.

Approach the banker at each financial institution that you believe may provide a small business loan to your company. Request a meeting. In the meeting ask three (3) things:

1. What are the characteristics of successful companies, as you see it? Put another way, what makes you decide to lend to a company? In responding to this question, get the banker to go beyond saying things like "strong balance sheet, strong cash flow", etc.

2. What are the key personality traits and skill sets of the leaders / management team of these successful companies?

3. Who are some of the equity sources of capital that these companies use or that support/invest in these companies?

4. (Bonus question) What do you see as the greatest pain points or issues for those companies that are on the edge of being successful (as defined by the banker)?

If you and your firm match the characteristics and personality traits that the loan officer deems is what makes for success, then you've likely found your business banker. And, if that banker likes you and your company as a potential lending client, then that banker will usually be willing to make the introduction to the equity source. Now you don't just have an inside referral, but more likely a strong recommendation since the banker will know that an equity infusion may be needed to close the transaction.

It works both ways. If you already have a relationship with a private equity firm or venture capital firm, then ask them to recommend a good lender. The lender they recommend will understand what the venture capital/private equity firm funds, how they fund, and how they typically structure their equity participation agreements. (This structure may influence the loan documents.)

Above all, when meeting with the lenders, keep in mind that you are interviewing them for the future. That's the stance you are taking. If you are actually looking for a company to buy, refrain from stating that fact. If the banker asks, tell him or her that you are preparing, but not yet ready to buy. Bankers like it when you prepare in advance. Also, the banker may have a company in his or her portfolio that you may like to buy. Once you build a relationship with the banker, he or she will be more comfortable talking to you about companies in their portfolio with business owners that wish to selland making the introduction. Prior to that comfort level, the banker will be resistant and could feel like they are violating their clients' trust.

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