How to talk so your banker will listen

People traveling in foreign countries know that if they learn the language, they will have a better chance of getting what they want. The same is true if you learn to speak banker language. Fortunately, you don't have to be fully lingual in banker language. But a few crucial terms will smooth your way and you will make a better impression if you understand the customs of banking. Remember, when you go to a bank for a loan, you are asking the bank to become your partner. Imagine how difficult it would be to form a partnership with someone who doesn't speak your language. So make sure you can converse with your banker on these topics:

• Definition of your business
• Your competitive environment
• Your business financial projections
• Strategies to accomplish your projections
• An action plan

Try to look for the right type of bank. Often people think they should be banking with large banks and when you talk with the big banks about borrowing $200,000, you don't get much attention. There are a lot of banks that are certified as small business administration lenders and they are probably doing to be more receptive to listening to you.

Here are some terms used by bankers:

• PROFITABILITY: Knowing how to discuss your company's profitability and the efficiency with which you run your business is the most important thing in your vocabulary.
• GROSS PROFIT MARGIN: This calculates net sales minus the cost of sales. It tells your banker how well your business can meet direct costs and whether you operate profitably.
• SG&A: What percentage of your dollars is consumed by overhead? Do sales adequately support your expenses?
• RECEIVABLE TURNOVER/AVERAGE COLLECTION PERIOD: Compared to your industry group, are your receivables high, average or low? If your receivables are high, perhaps your credit policy is liberal. You should look at ways to tighten up collections because you are creating carrying costs. Bankers don't like to see a lot of receivables because they feel that the money you are to receive may be in jeopardy. Your company should have an established credit policy. Your receivables turnover is your sales divided by receivables: then divide that total by 365 to give you "days sales outstanding" (DSO).
• Bankers are interested in how effectively you use money invested in plants and equipment because it shows how the money you invest in assets is generating sales dollars. To find your asset utilization ratio, divide total sales by your total assets.

Following are a few ratios used by bankers as formulas to get a simple reading of your business:

• QUICK RATIO: Cash plus Accounts Receivable divided by Current liabilities = Quick Ratio. This determines how well you can pay your current bills.
• WORKING CAPITAL: This is the difference in dollars between current assets and current liabilities.
• CURRENT RATIO: Includes inventory current assets. Since the bank doesn't expect immediate cash to be generated from your inventory, the current ratio is less precise than the quick ratio. The current ratio is basically current assets divided by current liabilities.
• DEBT TO NET WORTH: This gives some indication of your ability to repay a loan by measuring how much your company relies on borrowed funds. total debt divided by net worth = debt to net worth
• DEBT TO TOTAL ASSETS: This analyzes a company's ability to repay long term debt. Total debt divided by total assets = debt to total assets.

While this doesn't make you a banker, it might make your banker feel that you are more business astute in a financial sense and could go a long way toward their decision on whether or not to give you the loan that you need.

Another good point is to try to get your banker to come to your place and see how your business is run. He might feel more comfortable if he understands equipment, how it is used and some of the terms that we use in the demolition industry. While it's good to learn to speak bankers' language, it is also helpful to teach him demolition language.