Many business owners have mixed feelings about their banks and their banking representatives. They are unsure about whether they can be completely honest about their business without a negative impact on the bank relationship.
On a daily basis, you do not spend much time thinking about your banking relationship. When the time comes to tell the bank you’re planning to exit your business, or when you need money, however, you may experience feelings ranging from mild anxiety to outright dread.
Why? We've been conditioned to believe that bankers say "no" far more often than they say yes. That may or may not be true but bankers make money by saying yes. When they turn down a lending opportunity, they just don't lose money.
Like all other businesses, banks are eager to continue mutually beneficial relationships. If the sale or transfer of your business is unlikely to disturb that relationship, your banker is (or should be) vested in helping you execute that transfer. It should come as no surprise that smart banks value the relationship even if you are no longer part of it.
How to Answer the Question
Let’s look at two sale situations our firm has been involved in to clarify our point.
The first was a sale to a third party in which the entire purchase price was paid in cash at closing. In this scenario, we helped our client find a bank that was willing to finance the purchase at the sales price the client wanted. This transaction was supported by an SBA 10 year loan at a fixed interest rate of 5.375%. The business sold for $2.4M and 90% of the value was in goodwill.
In the second scenario, we have a client who decided to purchase shares from his partner so he could transfer ownership to his family. The owner’s family works in the business and the son wants to continue running the company when his Dad retires next year. The family used an SBA loan along with partner financing to purchase the shares from the business partner. The bank’s capital made the long-term estate plan work. Cornerstone also helped the client develop a governance strategy to minimize potential family disputes later on.
Again, the banks want your business and will help you make sure your plan and your buyer meet certain standards.
Where to Go Next?
Don’t be intimidated by the bank. Let us work with you to identify all of the steps that will help you secure bank financing successfully and without stress or anxiety. Your banker is ultimately a member of your team of trusted advisors, when the relationship is working well.
For more information about the role of bank financing in your plans for the future, and what the bank will require or request, contact us and we are ready to help you today.
The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisors who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. As a member of the Business Enterprise Institute (BEI), Cornerstone is an authorized distributor of BEI’s content and Exit Planning Tools. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization.