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Woo potential lenders with deposits and products

San Francisco Business Times - February 22, 2008— By: Robin Zander

You might be surprised to learn that getting a bank loan for your business is as much about relationships as it is about finance.

According to Mike Popovich, senior vice president of corporate banking for Mechanics Bank in San Francisco, a good relationship starts with trust. Sure, there's paperwork, but the process involves more than that. "It's best if the business is upfront," he said. "If there are bumps in road, it's good to bring them up in the beginning, so we can develop a solution."

In Popovich's experience, whatever problems the business owner is carefully not talking about will surface eventually. "So let's deal with it," he said. "We are not here to find ways not to do your deal. We're here to do business.

"The more complete (the paperwork), the more confidence there is in the banker. We want to know, does this company know what it's doing?" he said. A well-thought-out plan, explaining the reasons the business needs additional capital, is crucial. Popovich said once the banker understands that, it is easier to figure out what will help.

"When people come to us for loan, that's only one service we provide," he said. "We'll talk about the loan, but we want to talk to about a full relationship." That might mean treasury management, wire transfers and online services, as well as a loan, he explained.

"If you already have a relationship with a bank, why isn't it providing the loan? That might raise questions," Popovich said, adding that perhaps the original bank hasn't the capacity to handle the loan.

"Banks are looking for deposits," he said. "Any opportunity for a full relationship looks good to a banker."

Mark Gillis, senior vice president for commercial banking in the San Francisco region for Bank of the West, said good documentation is essential to the loan process.

"The more people can articulate their plan, the better they are able to define their borrowing need," he said. Since banks look at historical performance, having good quality financial statements is important.

But Gillis thinks a bit of a visionary quality is also helpful.

"Ask yourself, can this bank help me today? Can it help me as I go forward?"

What may be suitable when a business is small may be outgrown over time, Gillis explained. With a new business, a bank may make a loan based on the owner's assets. But, as the business expands, they won't be enough to finance growth.

"Some new companies are thinly capitalized," Gillis said. In order for them to grow, they will need more capital. "They reach a level where the owner can't continue to put personal funds into it."

In looking at loan options, Gillis said the best answer for some companies is a Small Business Administration loan. "They offer excellent terms, and some banks have SBA loan specialists," he said. "They have lots of flexibility, and are often a good starting point."

Despite the problems in the housing market, Gillis sees opportunities for business. "This is still a good time for people to expand their business," he said.