Banker & 2 Clients in Meeting

A lot of new business owners and startup CEOs understandably want to keep their finances completely private.  Their attitude is that it’s nobody’s business how much they sell or how much money they make.  But businesses that hold those beliefs usually

change them or they don’t grow into thriving, excellent companies.

For starters, the IRS and your state tax department will know your financial details when you file your tax returns.  Your accountant and bookkeeper will know your finances, or they couldn’t do their jobs.  They also know that if they expose their clients’ private information when they shouldn’t, they won’t have a job for very long.  Some of your employees will know some financial details that you may not want exposed to the public.  For instance, your buyer will know how you spend your money; whoever helps you set your prices will know your cost structure; and whether you like it or not, if you have a banking relationship, your banker will know everything about your finances, including your personal net worth.

Get over it.  Each of those people needs that information to do their job properly.  Here is what your banker typically will need if you are to convince him or her to give you a line of credit:

  1. A balance sheet and income statement for your business.
  2. Your personal financial statement showing all of your personal assets, debts, and income.
  3. Your personal guarantee that any money owed to the bank by your company will be paid back (by you if necessary).

 

Yes, you may own or run a corporation, but that doesn’t matter to the bank when you’re business is small.  Banks are not in the business of taking risks.  They may think they are, but the risks they take are miniscule compared to the risks you take in starting your business.  They don’t take risks that are not necessary, and loaning you their money without a guarantee that they will get it back is not necessary.

The banker’s attitude is hard-nosed but reasonable:  If this small business person doesn’t have enough confidence in his company to co-sign our loan to his company, how can we have enough confidence to loan him our money?

That is the bad news.   The good news is that everyone else in your shoes has the same requirements, including your competitors.  So it’s not at all a business disadvantage.  In fact, it will help you run an excellent company if your banker occasionally looks over your shoulder to keep an eye on your finances, and points out potential problems.  It may cause you some short-term emotional pain, but in the long run it helps you stay financially healthy.  Think of your banker as a member of your management team.  The rules he imposes on you are the medicine you must take to keep your excellent company healthy.

 In starting or running a business you have bigger problems to worry about than whether your bankers know the details of your finances.  Just like your doctors or your accountants, your bankers are professionals who, as part of your team, know that your information is confidential.  Their jobs depend on it.