Borrowing Best Practices

Written by David Wickenberg, CPA, CA, CFP on Mar. 6, 2018

When you are thinking of borrowing, you may not always understand what your banker is seeing or what they are asking for, but the good news is that both your banker and you want to see the business succeed.

That’s the most likely way for the bank to be repaid its loans and eventually see profits. Think of your relationship with the bank as a symbiosis. Like in nature, two things can often lean on each other in order to reach their goals.

As a business owner you should strive to understand how your banker thinks – and why he thinks that way. This can have a positive effect on your relationship and make it easier to get money when you need it. There are 9 simple things that will help you become a better borrower, enhance your relationship with your banker and make money more available when your business needs it most.

1. Set up your borrowing when you don’t need it
A lot of people ask, “When is the best time to borrow money?”  They’re surprised to find out it’s when you don’t need it. The bank is more likely to perceive you as being in a better financial position when you have no need to borrow. This is exactly when you should set up your next stage of borrowings.  You will have a much greater chance of getting approved and will be in a better position to negotiate terms, since you don’t really need the funds right then.  The worst time to negotiate a new loan is a week before you absolutely need to have the funds.

Set up your borrowing when you don’t need it

2. Character is of the utmost importance. 
Bankers need to know you’ll do the right thing when your company is in distress. If they can’t trust you, they can’t put money in your hands. That doesn’t mean fake good character – it means have and demonstrate good character.

3. Keep good records and maintain good reporting.
Bankers do not like late reporting packages, inaccurate information or reports that change without a good reason.  The more they can trust the information that you give them, the more they will trust you.

4. React and communicate on a timely basis
Banks are interested in how you react to tough situations. Don’t just tell them what you’re legally required to when they ask; keep them updated to avoid surprises. Bankers hate surprises.

5. Have some equity available
Bankers want an extra cushion of equity so they can be more flexible with your company in case it has a bad year. As well, if you have the ability to access some equity after a bad year or two you will be much more successful negotiating the next loan renewal.

6. Collateral gives the banker comfort. 
Collateral does not repay a loan, but it does ease the banker’s mind. If someone borrowed your cell phone to make a call, but gave you their drivers license and wallet to hold on to while they made the call, you’d feel better, wouldn’t you?

7. Servicing is your ability to repay.
Bankers like to see if you have realistic expectations. If it seems like you can repay what you’re asking for – which is to say, a reasonable sum and not your dream loan – you’re more likely to see the money.

Competition works to your advantage.

8. Competition works to your advantage. 
Banks are concerned about their competitors’ interest rates, collateral packages and guarantees. You can use this to your advantage by doing your homework when borrowing and making that clear to your banker (though no one likes to feel threatened, so be courteous about this). Knowing about your bank’s competition can also let you prepare for a needed quick search for a new lender should your banker pull out.

9. Communication is essential. 
Almost every one of these borrowing tips hinges on communication. Don’t keep things from your banker. If he knows what’s happening he can work with you instead of against you. Work with your banker to develop a strong relationship so that you both can succeed.

If you need more information or have any questions about borrowing, feel free to contact us at 780.466.6204, or info@kwbllp.com.

David Wickenberg, CPA, CA, CFP

David Wickenberg, CPA, CA, CFP

Partner

David grew up in Edmonton and after going to McNally High School enrolled at the University of Alberta in 1983. David initially enrolled in general sciences in order to have some flexibility in deciding what career path to follow. Teaching, computer science and business were all considerations but it was the flexibility and potential of a business career that led David to the faculty of business. An accounting major appealed to David in his final year since it provided the opportunity to interact with many different people and fulfill his desire to teach others what he knows.

David received his B.Comm from the University of Alberta in 1987 and was awarded his CA designation in 1990. After articling with KPMG he worked for two years in industry. First as a lending officer at a trust company and then at a large retailer as CFO.
David began his own practice in 1992 and after 4 years on his own merged his practice with Gary Koehli’s to form Koehli Wickenberg now KWB LLP. David received his Certified Financial Planner (CFP) designation in 1997 and uses that knowledge to provide full service plans that merge company and personal strategies.

David is married and has two children.

David has previously served on the board of Deal Generator, an initiative of EDE. He also served on the Board of the CKUA Radio Foundation and was the vice-chair for 2005 and 2006 and chair of the planning committee during that same time. It was during his term as chair of the planning committee that he helped develop the first full strategic plan for CKUA. David continues to be a strong supporter of CKUA.

When he’s not preparing tax plans and managing the business, David loves to play basketball or squash and also spend lots of time with his family.

David's Contact Information

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