01 Introduction 02. Bank Negotiation START-UP DOCS. The Negotiation Process. General Advice. Elements the bank will take into account

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1 DOCS Bank Negotiation 01 Introduction 02 The Negotiation Process 03 General Advice 04 Elements the bank will take into account Barcelona Activa SAU SPM,

2 01. Introduction In this report, you will find some practical advice designed to help you in the negotiation process with financial institutions. These recommendations can increase your chances of obtaining the funding your business project needs. Build your business plan. The business plan should be attractive and should define the goals you wish to achieve, as well as the means to achieve them. It should reflect a thorough knowledge of the sector you will work in and your skills as an entrepreneur. The first thing you need to be sure of, before approaching any financial institution, is the object of the financing being sought. If you have prepared a solid financial plan then you will have a clearer idea about the object of your funding needs, and will therefore be able to choose the financial instrument which is best adapted to your situation. You need to make an accurate projection of profits, expenses and investments for the next financial period and the dates when these will be payable. Another aspect to be considered is the initial debts. If a considerable part of your assets are funded with own resources, then you are have more chances of obtaining the funds. If, on the other hand, external funding exceeds the resources provided by the business promoters, obtaining extra funding from the banks might be more complicated. 2 / 2

3 02. The Negotiation Process The phases to achieve a successful bank negotiation are the following: Preparation Does the negotiation start as soon as you are inside the financial institution? The obvious answer is no. As the saying goes "success is 80% preparation", and negotiations are no exception to the rule. An important part of the preparation is building a comprehensive and solid business plan, which will be your calling card for financial institutions. Which factors need to be taken into account during the preparatory phase? - Internal factors of the project: building the financial economic plan will help give you a clearer idea of the following variables: How much financing the project needs. Use of financing: fixed or current assets, detailing both investment and expenses. Guarantees and securities you have. Ideal monthly instalment and duration: according to your treasury plan. Other financial products your business will need. Also personal preferences for particular financial institutions. - External factors: those arising from the current situation of the financial market. Market conditions: market interest rates and possible expenses of the operation. Where to turn: institutions with specific programs for entrepreneurs. Contacts you may have with banks. In addition to these factors, it is important to prepare the first 5 minutes of the conversation you will have with the bank. Do not approach any financial institution until your business plan has been perfectly prepared and written down, since the financial institution will not help you to finalise the details. You need to have a clear idea of what you want, and be prepared to answer almost anything. It is in your best interest to prepare in writing the first 3 minutes of the interview with the bank, that is, the initial greeting and your personal introduction, since these are the key to creating a positive first impression the negotiation start when you are already in the financial institution? It obviously does not. The saying assures that preparation amounts to the 80% of success, and negotiations are no exception to it. An important part of the preparation is having a complete and solid business plan which will be your calling card for the financial institution. 3 / 3

4 Presentation Once the preparation is complete, it is time to approach the banks to present your case. It is very important that you transmit confidence and conviction when doing this. You will need to show interest in the bank s offer, because if they assume you are only seeking generic information, they may also assume that your case is generic too. You should not project an image of anxiety or desperation since this could lead to a worse offer or to the bank refusing the funding. Throughout the presentation talk clearly, show interest but not anxiety and be aware that you need to include: - The initial greeting. - Your personal introduction. - The presentation of the project. - Your requested conditions. The key points in this presentation phase are: - Take a moment to start with the most positive mental attitude you can manage. Remember: if you think you can or you think you cannot, in both cases you are right. - Especially prepare for the first contact, it is fundamental to project trust from the start. - Be particularly kind and polite, the person who is meeting you holds the key to the funding you require. - Try not to be overly friendly: this may be interpreted as a lack of spontaneity or as an indicator of a lack of professionalism. Pay special attention to non-verbal language, this is the most determining factor in the success of your communication. Negotiation From this point on, the negotiation phase, strictly speaking, begins. The bank will be concerned with its own interests, and will ask that you meet several requirements. You will try to obtain the financial offer which best fits your interests and needs. During this phase, you need to take into account the following aspects: - Conditions: Obviously funding conditions, not only interest rate, but also the other variables, such as formalization costs, study costs, opening costs and total or partial termination costs. - Information: Consider the information provided by the bank and request the maximum possible information both about the loan and the process, approval 4 / 4

5 terms, etc. In addition, you should demand maximum clarity in the information provided. - Considerations: Special considerations, either sought or offered, in order to obtain the best possible conditions: guarantees, other bank products or services you will need, cards, accounts, insurances, etc. - Time: You need to be aware of how much time you have available for the entire negotiation process, and how long the bank will take to give you an answer and to finalise the entire operation. The greater the time pressure, the worse your position will be when it comes to achieving a negotiation which is favourable to your interests. - Alternatives: It is advisable to keep your options open, in other words, to obtain offers from several different banks. This will enable you to have more control of the negotiation process and to obtain the best possible conditions. Important: Think twice before you accept the first offer. You will probably be able to obtain better ones! Concretion This is the phase in which you reach an agreement with the bank who, having accepted your operation, will have made its best offer. You will then sign the funding agreement you considered optimum. The key aspects of this stage are: - Ensure that you have the best offer. - Before signing, make sure you are familiar with all the conditions. - Do not sign anything without having read it through. Beware of the small print! - Have a very clear idea of what you have undertaken in each part. Inquire about everything; make sure you understand absolutely everything. Evolution The moment of signing the agreement is the moment when your relationship with the bank really begins. In this phase, you should pay attention to: - Making sure that the bank is meeting its obligations. - Making sure that you are meeting yours. - Building a relationship based on trust. - Analyzing possible improvements on the bank s side. 5 / 5

6 - Monitoring the evolution of your treasury. 6 / 6

7 03. General Advice - Do not adopt an asking attitude. This makes you look inferior to the bank. It is all about negotiating a business relationship which has to be profitable for both parts, as in any customer-supplier negotiation. - Find out if you belong to any professional collective (professional association, big company, organism, etc.) which has an agreement on preferential conditions with a certain bank. Only by asking for advice in a local institution, will you be able to benefit from the preferential conditions of the program INICIA (Generalitat de Catalunya) for entrepreneurs.1 - It is also important to regard the negotiation as an opportunity to establish a long-term relationship with the bank (salary payment by credit transfer, tax payments, supplier payments, receipts, etc.) - Do not project a sense of urgency in raising the funds, even though you need to be able to establish specific terms in order to reinforce your image as a serious entrepreneur. At the same time, make it clear that you are also negotiating with other banks in order to choose the best offer. - Once have chosen the best offer, it is vital to arrange a second interview with the bank in order to make adjustments, arguing that you have several offers from other banks a couple of extra days in which to consider them all. 1 Search Work > INICIA Subsidies and Financing in the website 7 / 7

8 04. Elements the bank will take into account When you ask for you ask for financing, there is always an analysis of the financing operation which is not usually carried out by the person seeing you in the branch, but by the central services of the bank. After having assessed the submitted documentation, a risk committee will issue a report which is returned to the branch. The analysis process can take from three days to a month. When considering the loan, the bank will take into account what is known as "the five Cs": character, capacity, capital, conditions and collateral or guarantees. - Character: This refers to the qualities related to how a person runs his or her business and personal affairs. This aspect is vital, if we take into consideration that the proper use of the loan depends on the decisions of this person. - Capacity: This concept refers to both the physical capacity of the infrastructure and structure of the company and to its capacity to generate enough capital to cover the obligations arising from the requested loan. The assets detailed in the balance sheet will reflect the solvency of the company. - Capital: The capital is an indicator of the total investment of the partners and of the size of the risk that has been undertaken. The greater the capital (own resources) is in comparison to debts, the more guarantees the bank will have of recovering the money provided. - Conditions: The conditions are the various factors that can influence the loan decision. These are: The financial situation of the company: balance of assets and liabilities, performance, profitability and growth potentiality. In general, the balance sheet, the income statement and the treasury account will illustrate this situation. The situation of the credit market. The specific situation of the markets where the company operates. - Collateral or guarantees: Any guarantee offered by the business promoters as a source of alternative payment different from the own activity. In addition, the banks will ask for complementary information on: Record of previous loans. Commercial reports. Suppliers and customers of the company. Payment arrears (RAFT, ASNEF, etc) and debt files (CIRBE). Validity of proxy deeds and powers of the proxies. 8 / 8

9 Based on this information, the bank will analyse the main ratios of the company and study the evolution forecasts of the same for the following 3 years, paying special attention to the cash flow (calculated as profits + depreciation) of the company. The banks will need to assess the position of the company in relation to all of these aspects. Written by the Barcelonanetactiva team from the following sources of information: - Get the yes. El arte de negociar sin ceder. Roger Fischer, William Ury, Bruce Patton. Ediciones Gestión 2000, S.A. - Nunca aceptes un no por respuesta. S. Le Poole. Ediciones Deusto - How to get the yes in the practice. Cómo negociar, paso a paso, ante cualquier situación. Roger Fischer, Danny Ertel. Ediciones Gestión 2000, S.A. - Supere el no. Cómo negociar con personas que adoptan posiciones inflexibles. William Ury. Ediciones Gestión 2000, S.A. Como negociar con éxito. Kennedy, G.: Benson, J. McMillan. Ediciones Deusto Barcelona Activa SAU SPM, Last Update: 24/11/2009 Barcelona Activa SAU SPM will ensure that this information and the data contained in the reports are accurate and faithful. These reports are published to provide general information. Barcelona Activa SAU SPM will not accept under any circumstance any responsibility for losses, damages or theft, or for any other business decisions based on data or pieces of information that can be extracted from this report. 9 / 9