Avoiding the Kafkaesque Bank: Ten Ways to Get a Loan without Breaking Down
Note: This is the second part of a two-part blog series covering topics in Bob Coleman’s book, Money Money Everywhere but not a Drop for Main Street
Kafkaesque is a term used in literary circles to negatively describe the modern world’s complex economic, social, and legal systems. The term stems from author Franz Kafka, who suggests in his writings that life is a seemingly endless, torturous maze created by society.
In one of Kafka’s works of fiction called The Castle, the main character, Joseph K., arrives at a foreign village where he has been hired for work at a nearby castle. As he seeks entrance to the castle, suspicious villagers and authorities bar his way. For months, he tries to find a way into the castle by seeking acceptance from others, but he always encounters social and legal barriers.
The giant castle walls and sky-reaching spires serve as a depressing reminder to Joseph K. that reaching the castle is impossible.
Basically, the term Kafkaesque describes that which is dishearteningly unnavigable.
Avoiding The Kafkaesque Bank Loan
To many, the process of getting a bank loan can feel Kafkaesque.
At the ominous walls of a bank, you open a large glass door and walk past rows of desks full of bankers observing you in silence. Someone directs you to the corner office where business loans are handled. You sit at a large granite desk, and you explain to a suited figure why you need money. The banker gives you a pile of homework and points to the exit. Months later, people you’ve never even met review your request and turn down the loan.
The Bright Side of Banks
While this Kafkaesque feeling keeps some people from even walking through the bank door, the reality is much different. In truth, banks are there to give loans; that’s how they make money. You may not be able to waltz up to the big granite desk and get a bag of cash, but there are some things you can do.
Ten Steps to Securing a Loan
Business financing expert Bob Coleman suggests ten things you need to do to secure a loan:
1) Prove that you have positive global cash flow
This is huge. You need to show the bank stable historical cash flow as well as positive projections. Be concise and make sure your banker can understand your numbers. As Coleman writes, “If your financial situation is so complicated the banker can’t figure it out, you are not going to get a loan” (183). The lender wants to know you can pay off the loan. If accounting isn’t your forte, Coleman suggests checking out Service Corps of Retired Executives and SBA for free advice.
2) Know Key Benchmark Items of Your Industry
The banker will want know what a sustainable business model looks like in your industry. More importantly, the banker will want to know that you are capable and determined to get there.
3) Market Your Online Character
Banker’s will probably Google your name. If the results aren’t positive, be ready to explain. Even better, use social media to create positive results in Google before your name gets searched. Your online presence should show that you are an expert in your field. Start by creating a blog that shows your expertise.
4) Know Your Collateral
Write a list of everything the business owns that can serve as collateral.
5) Get a Life Insurance Policy
Life insurance can be treated as collateral, and some loans actually require you to have it. This may seem like a strange tip, but life insurance can be some of the cheapest collateral.
6) Embrace the Cloud
Much of your accounting needs can be managed on an online database with incredible efficiency. If you can present your numbers from the cloud, bankers will see you as someone who stays up-to-date with the most advanced technology, which is key to being able to compete.
7) Manage Your Credit Score
There are really only two things you can do with a less than perfect credit score: either be prepared to explain problems, or take the time to repair it. The latter, unfortunately, may take a lot of time. On the light side, banks are sometimes more willing to see past credit score when you have good character and positive cash flow.
8) Have a Plan B
If your business fails, how will you pay it off? What other assets do you have, and what are you willing to do to keep the terms? For assets, you may include such things as your spouse’s income and 401K funds.
9) Give a Company Tour
However detailed your business plan may be, a bank is never going to be convinced by a piece of paper alone. Give the banker a tour of your place. Show them first-hand how your business operates.
10) Show that You Can Survive the Economy
While you have no control of the economy, the banker want to see three things about you: 1) you know your market, 2) you can compete, and 3) you can adapt.
The business loan application process does not need to be “dishearteningly unnavigable,” i.e. Kafkaesque. Being prepared with these ten things will help you find the financing you need.
What else can you do to avoid a Kafkaesque bank experience?