- Posted December 17, 2012 by
St. Louis, Missouri
What's In Your Wallet? Building Bank Relationships
What most people do not realize is that we all do business with people at some level or another. You don't do business with an institution. You do business with people. When you get a bank representative that believes in you and your company, you may be able to accomplish incredible things.
Often banker is the loan officer or office manager who handles your account. A good relationship with that person can bring you money in the form of credit, save you money in fees, and enhance your business opportunities through taking advantage of the banker's extensive personal contacts.
Relationships between bankers and business owners take on as many hues and shapes just as in personal relationships, but the best ones all have trust and honest communication in common. A human relationship as well as a business relationship is forged.
Why Have A Relationship?
Better access to credit is one of many benefits garnered by those with good banker relations. The biggest intangible in any loan request is the person who is asking for the money. The more secure a banker feels about a borrower's integrity, the better the chances for loan approval. A strong, trusting relationship helps give a banker the important sense of security.
As credit is more than just loans, good banker relationships can also result in performance bonds, letters of credit, and the granting of credit lines, say several business owners. When a deal's window of opportunity is narrow, a quick bank approval can make the difference between getting the deal and losing it.
Bankers can also provide introductions to potential customers, suppliers, employees, and investors because of their many connections in the community. Only a strong relationship with the business owner earns such personal introductions. If bankers say nice things about your company, it's a tremendous reference.
Poor Relations Are Common
If banker relationships can be so beneficial, why do so many business owners suffer through poor ones or cultivate none at all? Often, the problem is that entrepreneurs don't understand the restraints and needs of bankers.
Think of capital as a food chain. Early in the food chain, capital should come from private investors such as family and friends. Later, professional investors such as venture capitalists can be tapped.
When a business has solid assets and a steady track record it is ready for a banker. Emerging businesses often struggle with their bankers because they ask for too much, given the immaturity of their companies.
Bankers, by law and temperament, are not investors. Risk and reward typically have a direct relationship - the higher the risk, the higher the reward. Investors decide to put money into an enterprise without guarantees they will get their money back, let alone a return, because the rewards can be large if the business succeeds.
Lenders, such as banks, don't have the same lucrative potential. Even if the money lent is the catalyst for putting a firm hold on the fast track to success, the most the banker can expect to get back is the capital (plus interest) in timely payments. That is one reason why bankers and entrepreneurs so often clash.
Not all weaknesses rest with the business owner, however. Bankers change jobs more frequently than politicians stereotypically change their minds, so many may be unfamiliar with their customers and wary of extending credit even when the company may be credit worthy.
Relationships, whether personal or business, are always challenging. There are certain things an entrepreneur can do, however, to help create a climate that is conducive to fostering a productive, long-lasting relationship with a banker.
Creating a Good Relationship
Clear, frequent, open lines of communication are a necessary component of a strong owner-banker relationship. Owners and bankers should communicate at least quarterly.
Bankers usually require quarterly financials with a major review once a year. If a loan is based on inventory or accounts receivable, monthly financials may be needed.
There is more involved in communication than mailing out financials, however. Invite your banker to tour your facilities. Do not extend the invitation just before you ask for a loan, as that will arouse suspicion.
Be sure to call your banker when something important occurs, such as gaining a major account or a major competitor. Put your comments down in writing to provide ammunition in case the banker's boss questions why something happened.
It's also valuable in the event your banker moves on, as the replacement can quickly become familiar with your situation if your file is complete and up-to-date. Identical to any relationship based on trust, this one requires time.
Finding the Right Banker
The banker can be a friend, ally, and consultant. Pivotal to establishing a good banking relationship is finding the right banker.
First, look at a bank's financials. A troubled or insolvent bank isn't going to do you much good, no matter how carefully you nurture a relationship with one of its bankers.
Deal with officers as high up in the organization as possible. Upper management tends not to change jobs as frequently as lower-level employees. Remember, you are the CEO or President of your company. You deserve the same level of respect from your bank.
Many small and medium-sized banks cater specifically to small businesses, while some larger institutions have small business divisions. These banks tend to have bankers who are tuned into small business issues - exactly the type of banker you want.
Just as you wouldn't hire the first applicant you interview for a secretarial position, why select the first banker you speak to? Interview several. The emotional component in a relationship makes it important to find a banker with whom you are comfortable.
When you have established and nurtured a good relationship with a banker, you can count on a brighter future for your business.
In my next article I will explore elements of bank insider knowledge to help you stay on your game with your banker.
Until then, all the best to you and your business endeavors.
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