What Successful Entrepreneurs Know About Banking That You Don't
Here's another way to go get cash without a bank.
Cash flow to a business is air.
Without it, our ideas have no life. It’s hard for us to create, serve or grow. Cash flow is how we bring ideas and opportunities to life.
The elephant in the room is banks don’t care. To them, we’re a line item on a bulleted list. Three months’ bank statements, a credit score above 700, and a background check might give you a chance.
We’re at the mercy of the bank’s spreadsheet.
It’s ironic. Governments bail banks out, perpetuating their bad decisions. Yet banks have zero empathy for entrepreneurs.
It’s common knowledge banks operate for private interests and function as a money system.
Slippery loopholes allow them to lend out more cash than is in the imaginary vault.
Somehow, we still trust them.
Ask an entreprenuer about access to capital, and we’ll tell you a horror story. We remember the mornings when our stomachs bubbled into the sink. Or the nights we stare at the ceiling, questioning our decisions.
Do we have the right clients? Have we focused enough on sales? What are we doing wrong to prevent us from getting operational cash?
We establish good credit and practice sound accounting techniques. We maintain a healthy balance sheet. Yet, banks look us in the eyes and offer a 37% loan.
There’s no reward for following the unspoken rules. Compliance gets you a swift kick in the junk.
It’s easy to think, “why me?” but it doesn’t help. “Why me” keeps you in bed when you should be grinding. It’s a recipe for despair.
There are a few choices to bring cash into our businesses. Raise funds. Or we borrow. This is where banks should come in.
But raising cash for specific businesses is a massive cluster. Bankers shun you unless you have trucks, tools, or real estate. A bank VP needs something to take away if we can’t repay the loan. It’s called collateral.
I generated over $50M in revenue in less than ten years, and not one bank gives a damn. There’s no column for me on their spreadsheet. I did so without VC help, hard money loans, or government handouts.
I earned it, yet I’m an outcast.
But after decades of running businesses, you learn a few things. You know a few money tips.
For example, it’s best to raise money when you have money. Establish relationships with money people, or a random bank clerk can rip your line of credit away without notice. And there’s no mercy when your receivables slow down.
The bank calvary isn’t coming.
A couple of years ago, I faced a major deal necessitating a substantial increase in our workforce, and I needed cash flow to hire engineers.
One banker said our receivables were inconsistent. When I explained our fixed-bid model, he looked at me like a dog hearing a whistle.
I shared our sales pipeline, P&L, and chart of accounts. Unconvinced, a banker dude requested letters of intent. He needed proof.
I reached into my backpack. “Here ya go!”
“We’re going to have to check your references.” As soon as his eyes peered over his glasses, we were doomed.
They whispered in hushed tones ten feet away, hands over their mouths. I was a specimen.
The manager banker dude comes back over. He adjusted his tie. “Are you the owner of the company?”
“Yes, since 2004.” I thought, who else would walk in asking for money?
“We’re going to have to visit your office.” I thought, “okay dad.”
A few days later, a banker dude shows up at our office. “Do these people work here?”
Part of me wanted to tell him we hired actors to steal the bank’s money.
“Yes, these people work here.” I went through the motions, but it was hopeless.
We waited four painful weeks. Each hour, I refreshed my email. I answered calls from unknown numbers. Hope had me on edge. No news is good news, so the saying goes.
Despite a 15-year banking relationship, we weren’t good enough. The millions we generated didn’t help. Letters of intent from fortune 200 companies didn’t matter.
A banker dude with a window seat at a strip mall declined us.
Where there’s a will, there’s a way.
As entrepreneurs, we have to be creative, or our dreams die. We must win or face the worst—working for someone else.
Bank rejections make you rethink your approach to cash. It makes you want to succeed despite the old moldy American infrastructure. You know, the lie we call banks.
After staring at the ceiling for days, I contacted my money friend. I bitched about banks. He agreed. Together we took a company public. I was the geek, and he was on the deal side.
We kicked around a few ideas. His money mind began to work.
He mentioned working with high-net-worth individuals. These people don’t mind investing and getting paid based on revenue.
Money guys embrace calculated risks and take time to understand the business model. Bankers read spreadsheets.
We came up with this plan: Obtain a six-figure cash infusion. Something meaty enough to allow us to operate. The high-net-worth individual gets 20-30% over a fixed time frame.
The good news is savvy investors don’t mind getting paid off revenue.
Bank managers zap our cash each week at high rates.
There’s no equity play in this structure. He’s a rich dude getting a great return on his cash for a model he believes in.
My money friend shared other structures. I was no longer a specimen judged by a banker at a strip mall.
I had a chance.
No one qualifies for loans.
It wouldn’t surprise me if the U.S. government failed to meet a bank’s loan criteria.
When you share bank shenanigans with money people, you often hear, “Yeah, it’s how banks do it.”
It’s an apathetic waving of the white flag. Excessive cartel interest rates are commonplace. Abitraray “good credit” scores are standard.
The problem is: a ho-hum attitude hurts the people who provide opportunity—entrepreneurs.
I pay for services to monitor my credit score from all three agencies. All of them are above 700 until I apply for a loan.
You see, “banks have their formula” :) It’s a formula under lock and key. Ask them to see their evil calculation, and a manager will tell you, “bank policy doesn’t allow them to share.”
It’s not all the banks’ fault.
Introspection is a secret weapon for growth. It’s a tool to help us recognize the need to raise money consistently.
Open lines of credit. Pay attention to credit card fees. Forge banking relationships. Attend fuddy-duddy meet-ups with money people.
A founder's critical job is to ensure enough money to run the business. A mistake is to high-five yourself when customers pay on time. We tend to drink our kool-aide when our bank balance is high.
Successful businesses emerge from dismal situations. Anybody can run a business when things go well.
My money friend gave me a golden nugget. He told me to grab cash from banks when my cash balance was high. Ask for money when I get three months’ consistent receivables.
The strip mall banker won’t be able to help himself. His spreadsheet and the bulleted list will demand he throws a stash of cash with a reasonable interest rate.
His advice to me: Save your cash. Borrow and use other people’s money to operate your business.
The takeaway
As an unsolicited tip, I encourage entrepreneurs to hunt for cash when it’s unnecessary.
First, we know banks throw shade at low balances.
Second, our spirits and confidence match our bank accounts. It removes desperation and, therefore, lousy interest rates.
Money connections will save your business. These people see the world from a different perspective. Experience teaches them secrets.
Even when things look grim, there’s a way. We’re one conversation away from redemption.