One of the main functions of banks is to loan money to business so they can grow and help the overall economy, both locally and nationally. They pride themselves in statical knowledge and data mining. For most of them, they believe in the mantra, “numbers don’t lie”. From my perspective, and many of my clients and colleagues, banks have no clue on how to grow a business.
A rant: Banks want to bet on sure things, so quit pretending that you want to help business grow. Who doesn’t want to only bet on sure things, but that’s not real life. There are no guarantees in life. Unfortunately, banks still believe in this fairytale. The flaw in “bank thinking” is if you are trying to create, grow or expand, by definition, that’s risk. If you are betting on a sure thing, then you are betting on the past or what has already happened. I understand minimizing risk is wise, but often, going all in is one of the best ways to minimize risk. How can you expect to succeed doing things half heartedly? Why should believe that you’ll dominate your competition by only committing half of your efforts? You really can’t. This is where the banks have it wrong. It’s not they have to go all in, but they need to see past the numbers (because they do lie), and truly understand what it takes to create and grow a business. Most bankers have never started a business or owned one, so they are making financial judgement calls in an area they are completely ignorant about.
A rant: Banks don’t realize that marketing is the life blood of ANY business (even theirs). By not giving loans for marketing needs, banks actually add to the failure rate of small and mid-size businesses. Banks have become part of the problem, not the solution. Unfortunately, bankers don’t understand that not funding marketing to their business clients is like refusing to put oil in a car. Eventually, all the parts will seize up and the engine will blow. Then banks often say, “good thing we didn’t give them any money”. That’s more stupid business than wise business.
A rant: Banks bet on balance sheets, not on people. Too often, many small and mid-size businesses are reduced to a balance sheet when it comes to being approved for a loan. And, too often, it is these balance sheets that banks make their bets on. They say they bet on people, but in reality, it’s just lip service. Banks need to take a lesson from their brethren and do what most wise fund managers and private equity do, look hard at management. Many highly successful fund managers and private equity groups would rather fund a company with a poor balance sheet with crackerjack management than a great balance sheet with marginal players in management. This is where big money is made in terms of ROI. What banks don’t realize, is to be an entrepreneur life does get messy. Your balance sheet, both personal and business, gets messy. It is this mess that creates greatness. Google went four years without making a dime. (note: they went to private investors and equity partners for funding since no bank in their right mind would ever loan two college drop outs any amount of money.)
The main point of this entry is banks don’t really understand what it take to start and run a business because many of them have never done it themselves. The soft issues (brand, marketing strategy, management, processes, etc.) are really the true hard assets a company has. The things they believe are hard (financial reports, balance sheets, physical assets, etc.) are really soft since they can be what ever you want them to be and hard assets are only worth what ever someone is willing to pay for them, regardless of what a bank says they’re worth. So, to all my banking friends, learn to look at the real assets before you deny a loan just because their balance sheet isn’t a “sure thing”.
If you haven’t learned already, “No such thing as a sure thing.”, then you shouldn’t be in banking.