Here are some practical strategies for dealing with a person we all come face-to-face with sooner or later: our banker. While all small businesses may face problems with their bankers from time to time, women small business owners seem to encounter all of the usual problems, plus a few more. Recent research into the credit situation for small firms has revealed a number of unique problems faced by women business owners. Knowing what to watch out for, and possible ways to handle certain problems if they arise, can go a long way toward helping women business owners reduce their banking costs while maximizing the quality of service received from their banker. As a starting point, all of the advice normally given to small business owners naturally applies to women business owners as well. In fact, since many lenders do seem to be more wary of women as good credit risks, women would be well-advised to be especially well-prepared for that first encounter with a prospective lender. Choose your banker carefully The initial selection of a financial institution is crucial. Once your business accounts are established with a particular institution, it is quite time-consuming and potentially costly to contemplate a move, not to mention aggravating. Furthermore, lenders all talk to one another, especially if you are located in a community where there are few financial institutions. So although there are some areas in which the financial institutions do compete, the continued dominance of a few very large banks means that the general environment is not truly competitive — especially for the small business client. Your best source of information on choosing a financial institution is other businesses especially those similar to yours in terms of age, size, and sector. Research indicates that the services offered by most financial institutions are very similar, and that the most important variable is the individual you will be dealing with most often — notably their competence, sensitivity, and responsiveness. Surveys have shown that women business owners put an especially high value on having an account manager who has a good operating knowledge of the industry, the local market area, and the business owner herself. Banks are not the only players in the game Research has shown that the smaller financial institutions — the credit unions and trust companies — consistently receive a higher satisfaction rating among women business owners than the large banks. This is likely a result of these financial institutions having a more community-based character, and therefore being more in touch with local market conditions and local businesses. As well, the frequent rotation of staff in the larger financial institutions is an ongoing source of problems to smaller firms, who may find themselves having to “break in” a new banker every year or so. The problem of staff rotation is worse in large urban areas than in smaller centers or rural areas, and seems to occur more frequently in the special business branches of the banks than in regular branches. A lower rate of staff rotation in the smaller financial institutions may well be another reason women business owners find them better than the large banks. So, although there is no question that finding a good individual with whom to conduct your business banking is essential, the type of institution that individual is attached to may determine how long that person will stay there. Some banks have started to assign more than one person to an account, so that if the key person were to leave there would be some back-up. Given the importance of some personal knowledge of your business on the part of your lender, it may be worth inquiring as to what back-up provisions the institution has for your account and familiarizing more than one person at your financial institution with your business, where possible. The explosive growth in the number of businesses owned by women over the past few years and complaints regarding their treatment at the hands of the banks has raised the financial institutions’ awareness of these issues. Although problems undoubtedly remain, the continued success of women business owners has meant that discriminatory treatment of businesswomen by the banks is not only unacceptable from a social perspective, but is also bad business. Some problems are worse for women … such as collateral Studies have shown that a persistent problem of women business owners seeking credit is the amount of collateral required to obtain a loan or line of credit. One study found that while the average collateral/loan ratio for small firms generally was about 2.7:1, almost twice that amount on aver age was required of women business owners. The reasons for this higher collateral requirement are not clear, unless the lender perceives that a woman business owner is more risky than a man and compensates for this perceived higher risk by backing a credit with a great deal of collateral. Whatever the reasons, if you think your banker’s collateral requests are excessive, do some research on what is being required of businesses similar to yours and negotiate with your banker. Experience has shown that some bankers will seek as much collateral coverage as they can get and negotiating down to a more reasonable level may be helpful to avoid tying up all of your assets in one place. Your type of business In addition, studies have indicated that women in areas of business not “traditionally” viewed as those likely to be owned by women — the construction industry, for example — can have a harder time obtaining credit than a woman business owner in a more “typical” area such as a retail store. Old attitudes die hard, and if a lender believes a woman business owner is only competent to run certain types of businesses, this is likely to be reflected in a higher cost of credit to women operating “non-typical” businesses. The best advice in this case is that if you are running a business in what could be viewed as a “traditionally male” industry sector, compare terms of credit offered to you with those offered to similar firms owned by men to ensure you are receiving competitive treatment. Another research finding is that although women business owners do eventually end up being granted credit, they often have to go to more financial institutions than do men before that credit is granted. The moral of this story is don’t give up if you are turned down by the first or even second financial institution you approach. The evidence suggests that perseverance pays off. Although the issue of women having to have a cosigner on a loan more frequently than men has received a lot of attention, recent research suggests that, these days, everyone is asked to provide a co-signer more frequently, regardless of gender. The likely reason for this is a change in family law which provides for an equal division of assets on dissolution of a marriage, so that lenders want to be sure that, in such an eventuality, they will not have problems with the collateral hacking up a loan or credit line. Once you have found the best financial institution, branch and individual banker for your needs, the onus is on you to provide the type of information on your business needed to establish a mutually beneficial relationship. Access to term loans and lines of credit Most businesses maintain an operating credit line on an ongoing basis, and may also hold a term loan at any given time for a specific purpose such as the purchase of a new piece of capital equipment. Data shows that women have a more difficult time than men in obtaining a credit line from a bank, whereas the experience of the two groups with term loans seems to be fairly similar. Other studies have also shown that women face more obstacles than men in obtaining credit lines. A term loan is a more rigid form of credit than a credit line, has a fixed repayment schedule and is usually secured several times over by hard assets. On the other hand, a line of credit tends to be a floating form of credit with a maximum amount, which is also secured with collateral but because of its floating character is less fixed and predictable for the banker. Research has repeatedly shown that when the perception of risk is higher, such as a credit line being considered riskier than a term loan, women tend to be treated differently than their male counterparts. This is borne out by the greater difficulty women business owners seem to face in establishing credit lines as opposed to term loans. A floating credit line is a very important component of a well-rounded overall financing package for a small firm. The best advice in this instance is to be well-prepared for more resistance from your lender when you seek a credit line than when you want a term loan, and counter that resistance with thorough information on your business, its plans, financial projections and its financing needs. As always, it is helpful to know what other businesses comparable to yours are receiving in the way of financial treatment. Some final words In summary, never be afraid to negotiate with your lender, ask for a better deal, a better price or better service. Don’t hesitate to bring all of your cards to the table — such as personal or other business banking you or your family may conduct with the financial institution including personal loans, and so on. All the lender can say is no, and that may be your first hint that it’s time to shop around. Too often the small business owner feels that the bank is doing them a favor by lending them money. Don’t forget that small business lending is one of the most profitable areas of bank business, and that they are not in it for the good of their health. The banks will compete, but only if they are forced to. Otherwise, they tend to charge what the market will bear, and the sky’s the limit. Women business owners are a growing force in the San Fernando Valley business community, and lenders are increasingly aware of this important and expanding market. If you are well-prepared and confident in your business prospects, there is no reason why any lender should not be delighted to do business with you.
