By Alan Corbet

Integrity. Honesty. Do you have it?

Have you ever interviewed a job applicant only to discover through the interview process that the candidate stretched the truth on his or her rsum? If so, how did you view the candidate from that point forward?

Character
Banks base their lending decisions on the "four Cs" of credit: character, capacity, collateral and capital. A question bankers often ask is whether the business practices and general reputation of the prospective borrower is such that the bank is comfortable. When bankers make loans, they are doing so using the deposits held by the bank. They are charged with loaning funds to borrowers who display qualities of integrity and honesty.

Of the four Cs, character is perhaps the most important. When a bank approves a loan, it does so because of the business owner (the individual), not just the business. Some bankers say, "We don't make loans to businesses, we make loans to people who own a business."

In the context of banking, character is sometimes defined by the integrity of the application and the business owner or applicant's word. It is tempting to embellish the application or interview for the sake of the "sale." But before doing this, think about the impact this approach may have in the long run. Keep in mind that a good long-term relationship with your banker is important to the success of your business. Bankers are much like business owners; after they run the numbers and read the plans, they are most likely satisfied with the loan application because of the experience they have had with the owner during the process.

Embrace Integrity
Embrace the fact that an open and honest relationship needs to be developed and nurtured during good times, so that it can bear the weight during more challenging times. Make sure you can deliver on your word. No matter the situation, if you always under promise and over deliver, you are building trust.

Showing integrity with your banker will continue well beyond the loan application and approval. Having a banker as an advisor can help in many ways, but your banker can only help if you show your own integrity and honesty of how you run your business.

One item that will always test your integrity is what you do with the loan funds once they're in your hands. For example, if you used the funds the bank loaned in a different manner than your agreement, you are risking being in default and the bank has the right to call your loan.

Communicate Changes
Suppose you began spending the loan on specified items needed for the business, but soon realized you had to spend the funds in a different manner. What do you do? Do you tell the banker, or do you decide to wait before offering that information? Your biggest concern is they might demand payment in full, and that will likely close your business. Be assured, the banker needs your business to be open. That is how they will get their loan repaid. Bankers are just like business owners-they want strong, financially healthy customers. And they want an open and honest relationship just as you want such a relationship with your staff and vendors.

With all of that said, if you need to use loaned funds in a different way, go to your banker as soon as you can to discuss the situation. Bankers expect you to follow the original agreement. But they also understand that circumstances can unexpectedly change in a small business. They will want to know why you changed the agreement. Bankers may not always agree with your decisions, but by seeking their advice now, you are building trust in the long term.

If you wait to tell them, that information may come to light when you need more money. If the banker finds out then, he or she will question your true intent on the new request. Trust your bankers because they trust you. If they didn't, they wouldn't have approved your loan.

Bankers are a good source of information and knowledge when it comes to managing the financial side of your business. They are a great place to start when you need ideas about how an expansion might be financed. As well, the more they know you and your business, the more people they will tell about your products or services. But remember, bankers can only help if they have the correct information. The knowledge and information they give is only as good as the information they get.

Alan Corbet is the manager of finance & accounting for Metzler Bros. Insurance. You can reach him at (816) 421-6116.