Cash flow is critical to a business’s success, and I always think of cash flow as akin to the blood in your body. If you run out of blood, you’re not going to make it. If you run out of cash, you’re business is not going to make it! Loans are one tool truckstop and travel plaza operators can use to maintain their operating cash flow, cover unexpected expenses or grow the business.
That is why having a relationship with a bank that understands your needs is very important. I am certain that one of the most important business relationships truckstop and travel plaza operators have is with their banker.
Building a relationship starts with finding the right banking partner. Often, operators start with a local bank and have a personal relationship with someone because they grew up with them or know them thru the local community. Those are valuable relationships, but, at the same time, that can be a hindrance because that local partner may not understand the commercial lending like bigger banks do. Of course, the trade-off with a larger bank is the experience is much less personalized.
Understanding your bank's abilities and where you fit within their abilities is an important piece of deciding which bank to deal with. I also encourage people to have multiple banking relationships.
When pursuing a loan, it is important to get competitive bids. Don’t just be happy that a bank is willing to loan you money. You want to shop that loan out.
A lot of times, banks want more of your business before providing a loan. They want your deposits, and some want your credit card processing, which typically isn’t the most aggressive credit card processing rate.
Also, they may want your personal guarantee on the loan. Are they satisfied with the asset that you’re using as collateral—is it the building, the business, the inventory? The loan covenants are something you want to evaluate carefully.
Another critical piece of a loan is its structure and amortization. If you happen to be in a position where you find yourself with sometimes having large deposits in the bank, there are other loan structures that you may want to consider. Instead of a typical seven-, 10- or 15-year amortization, such as on a real estate loan, you can structure loans that are a line of credit so you can then take those cash deposits and apply them against the loan balance daily. The bank will do this for you automatically. That allows you to pay down a loan when cash flow is good and tap into the line of credit when your cash flow dictates while also monitor the balance daily.
Banks typically index loan interest rates to Prime for varying rates or Treasury Bills with differing maturities such as the 1,5 or 7 year terms for fixed loans.
An indexed rate is an interest rate that is tied to a specific benchmark with rate changes based on the movement of the benchmark.
Not all indexes are the same, and you need to understand what your bank is referencing.
When applying for a loan, banks want to receive your financials. Good communication with your banker is always critical. They want to know how your business is performing, and I suggest you be brutally honest with your banker. They evaluate a multitude of different businesses they loan money to, so they appreciate those who are honest with them. Some people try to make their numbers look better, but bankers can see right through that, so just be honest.
Businesses should also factor in the timing of when to get a loan. Ideally, you establish a relationship early because you don't know when you are going to need the funds. Something like COVID might hit or the opportunity to acquire another business arises.
One thing to remember is that everything is negotiable. I have found in dealing with different banks or vendors to simply ask the question, ‘Is that the best you can do?’ Then just wait for their response, Don’t talk anymore and let them respond.
Remember that cash is the life blood of your business!
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