Why A Bank Is Probably the Worst Place to Get Loan
When You Buy Your New Liquor Store
By Richard Parker: President of The Resource Center for Buying a Liquor Store™ and author of How To Buy A Good Liquor Store At A Great Price© .
It’s interesting that the average person considers banks as the first place to get a loan. After all, banks are among the most difficult lenders to deal with. I have always found it peculiar how their advertising presents them as “small-business-friendly” institutions, just busting to give you money - but reality sets in when you sit down to talk. Don’t be delusional. They want you to guarantee the loan with everything you own, plus pledge your first-born.
Banks will lend you money when you already have it and don’t need it from them! They do not want any risks whatsoever (that’s why they own all of those fancy buildings). It is incredibly difficult to get a loan from them for a business purchase, unless it is fully collateralized with liquid Assets. You would think that if a business had a track record of Profits, good Assets and Cash Flow to service the Debt, the banks would be happy. Such is not the case. I am willing to bet that you will get the story that since you are a new owner, you must demonstrate a year or two of success before anything less than a fully collateralized loan will be considered.
It is worth your while to visit with the banks to understand how they operate. Even if your credit is perfect, and your history with a particular bank long-term, don’t hold out much hope for negotiating a good arrangement. If you have to provide personal guarantees, you are better off to finance with the Seller and/or SBA because the terms will be better. You can learn about these borrowing options in my guide, How to Buy a Good Liquor Store at a Great Price©.
You should consider financing “something” with a bank. Even if you have to guarantee it personally, it does make sense. The reason is that you want the business to establish a relationship with the bank. This way, if you perform satisfactorily, after a year or two, you will be able to utilize the bank’s services for other needs that may arise.
A good way to do this is to set up a Line of Credit, even for a small amount (as low as $5000). Pledge what you must to guarantee it, but not more than the value of the line. Use the Credit Line regularly whether you need it or not to show activity. Borrow, pay back, borrow, pay back and be on time with your payments. This way, when the time comes (if it does) where you need the bank, it can see that you are an active client and that your record is flawless. It’s amazing how this tactic can pay dividends. The small amount of interest you may pay will be more than offset by the leverage gained when you do need the bank. Establishing this credit history for the business will also serve to improve your credit rating overall. Any other parties from whom you may seek credit will consider it.
The other area where a bank may be helpful is to provide you with contacts for other lenders such as Asset-Based Lenders. Sometimes, the banks have other divisions that do this, or they may work with those lenders. Ask for their recommendations and have them provide you with a letter of introduction, if possible.
To learn more success secrets of top-performing liquor stores, be sure to order our guide, How to Buy a Good Liquor Store at a Great Price.
This article represents a fraction of what you’ll learn in How To Buy A Good Liquor Store At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a liquor store. Read a detailed listing of what you'll learn.