Once upon a time, there was a banking environment that was fueled by the American dream and a belief in human potential. If you’ve been in business for more than a few years now, you probably recall an infinitely different world of lending than we have now.
When I was qualifying for my first house, all I needed were two simple letters: one from my parents saying they had “gifted” me the $10k I needed for the down payment and another letter from my employer at the time saying “this girl shows some potential and we will be giving her raises.” And then, voila! I had a house that was more than I could ever afford on the slave’s wage I made at the time, but, according to their parameters, I qualified.
These days, the playing field is different; there is an insurmountable disconnect between an entrepreneur and a banker. Maybe it’s just that I have an underlying distrust of organizations that still close for Columbus Day—I mean come on people, even kindergartens are open on Columbus Day.
As an entrepreneur, you’re focused on the future, the dream, and the prospect of your vision. You exhaust those around you with titillating stories of your company’s obvious success. You believe to the depths of your soul that your idea has doubtless profit potential. However, your bank couldn’t care less. Bankers have their eyes firmly affixed on the rearview mirror. The premise of traditional lending is not to care what you can do, but instead what you have done. And just as I’ve said again and again, the former can be an exponential representation of the latter for many an entrepreneur.
What’s on your tax return? They ask as they begin to interrogate you into oblivion on standard entrepreneurial protocol such as hedging and risk-taking. They persecute you for the credit reports, balance sheets and personal guarantees that ensue. All of this because of the L word of all L words—LEVERAGE. There is not an entrepreneur out there without it, but it makes most lenders reach for the Tums.
Now my opinion differs from many of my clients’ lenders on how much of this rigmarole is actually necessary rather than just CYA. The simple fact remains: Lending as we used to know it is gone and we need to be ready for the time, frustration and expense that will be needed to navigate this new regulatory structure.
Please stay tuned for the rest of this four-part series that discusses information you need to know in order to thrive in this new environment—from vocabulary to reporting. In the next three postings, we will discuss alternatives to traditional financing, surviving the underwriting process, and what to expect once the loan is in place. So, let’s get leveraging!