The Research Design Associates Blog

(Robert Bowman)

Getting your small business loan

When meeting with your banker about you loan, be prepared. Go ahead and play out your scenarios- best case, most likely, and worst case. Everyone loves to do this part of the exercise… at least the first part. Best case scenario, “If everything goes just like I hope and my plans all go right, I’ll …”, you know the game. We all do it, that is what keeps us going. Now let’s finish the exercise. Be positive about your project. Happiness is contagious and it will often yield more positive results. Don’t, however, be foolish enough to ask for too much. As little as 6 years ago, borrowers and bankers alike would “jokingly?” hint that you should ask for as much as you wanted because leverage was good since it was someone else’s money.

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Finding your way in the new banking environment

Getting to know the new sheriff. Whether you are an established bank customer or seeking a new relationship after the recession, everyone has to get to know the new regulatory sheriff and banking reality. Be prepared for the reality that your collateral will be discounted substantially in value to cover your loan. Bankers always believe the market for your collateral is headed south so they want to stay ahead of the curve. And they have to include the cost of asset sale. New lending guidelines make some assets seem worthless. Bankers, while often accused of being simple minded, can no longer afford to be mesmerized by dog and pony shows where borrowers attempt to “hide the ball”. Either the ball is there, or it is not. If it is not there, don’t pretend it is because you will look stupid when they find it is not. Conversely, if the ball is a stinker, don’t try to hide it because they will be mad when the turd surfaces.

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Navigating the new small bussiness banking world

Understand today's lending process is different and will probably never be like it used to be in the days or easy money. We have literally witnessed the exodus of decades of business traditions and the overnight installation of a new sheriff. Banking is a business built on promises. The bank promises to loan an amount of money for a given time. You promise to pay based upon a schedule. With all of the defaulted loans over the last several years, bankers are gun shy and really don’t care if you “pinky promise” or threaten to “stick a needle in your eye”. They only want results that can be substantiated with cold hard numbers that they can verify.

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Your Loan – Lost in the “Global Cash Flow”

The concept is a borrower’s “Global Cash Flow”. The best way to understand your Global Cash Flow analysis is to picture an onion. TO get around this bloomin’ onion, most borrowers are creating containment circles around the borrowing entity to limit the never ending search for a problem. Assuming the borrower can repay the loan with adequate cash flow to spare, most companies have started looking at their corporate structure to head off any problems at the pass.

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Need a Loan?

Think of the most painful, physical experience you could ever imagine… (Giving birth? Passing kidney stones? ) and most times, you will find that experience minor compared to making a loan application. While filling out the endless forms is a lot of work, it's not really hard. Once you understand the “new banking game”, the process becomes quite easy. The secret is to start with the end result and work your way backwards. Your “destination” is your loan approval. Your loan officer wants to make sure you can get there by paying your loan off as it comes due. You can either make them dig through endless, unorganized documents that you grudgingly brought in OR you can impress them by showing that you understand the process and by giving them what they need in an orderly format.

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Delay wastes monetary resources (interest payments) and even worse, we lose the ability to get “our ox out of the ditch” and to get ahead of our competitors (opportunity cost). In my opinion, lost opportunity is the real crime because it never comes back. We must move on. In a world that is changing in exponential dimensions with emerging economic power houses, dwindling resources, out-sourcing of American jobs, population explosions, unstable governments, terrorist concerns… We need new ideas - a new road map. My business model is broken, the fundamentals are there, but what are my buyers thinking? Answers for the future are not always the tried and true ones we all used forever.

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I’m OK, but is the bank I want to borrow money from OK?

Should I be borrowing from my bank? Are they solvent? How can I know what shape my bank is in? When is it time to abandoned my bank? Who can I trust? Texas Rations and Tier One Capital Ratios are available. Investigate your bank to assure they are as worthy of your business as you have to demonstrate you are of their money.

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I Need A Loan

What do I need to do to get a loan and what bank can I trust? Looking for a new bank is a lot like the “dating” game and the ”vetting” process is often long, awkward and may involve several/many banks. You need to find a good personality match as your banker is your “salesman” who takes your case. Start where you are already known, preferably where you have an existing banking relationship, provided it is a “healthy” bank .

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My Comfortable Banking Relationships

When asked to participate in this blog I was asked to write about my knowledge of and experiences with lending and borrowing money, I had to laugh. This subject is broader than it is long, deeper than it is wide, and changes daily. The only consistent answer that I can muster is if you absolutely, positively, do NOT need the loan, you have a 75% chance of success.

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The Small Bank Mess

My business career has reached from loan officer in a regional bank through being a successful single family home developer to now attempting to create jobs and jump start sales of first time homes. Fortunately my thinking has led me to be just ahead of the market.

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