While every business has a bank, few have a banker. That’s because bankers are too often seen as obstacles standing between an entrepreneur and the bank’s vault. “You don’t do business with an institution. You do business with people. When you get a banker who believes in you, you can accomplish incredible things,” counsels Debbi Fields, founder and chair of the board of Mrs. Fields’ Cookies. The banker is the person who handles your account. A good relationship with him or her can provide access to credit, reduce fees and enhance your business opportunities via personal contacts.
Relations between bankers and business owners are as varied as personal relationships, but the best ones all share trust and honest communication.
Why have a relationship?
The biggest intangible in any loan request is the borrower, notes Mitch Hurly, vice president and manager at First Security Bank of Utah. The more secure a banker feels about a borrower’s integrity, the better the chances for loan approval.
Good banker relationships can also result in performance bonds, letters of credit and the granting of credit lines. Tom Rose, co-owner of Marietta Industrial Enterprises Inc., a warehousing and transportation company in Marietta, Ohio, estimates he shaves 30 to 60 days off such transactions as getting loans or credit line extensions because of the close relationship established with his banker. When a deal’s window of opportunity is narrow, a quick bank approval can make all the difference.
Bankers can also provide personal introductions to potential customers, suppliers, employees and investors because of their many connections in the community. “If bankers say nice things about us, it’s a tremendous reference,” emphasizes Sidney Green, president and CEO of Terra Tek, an environmental services firm in Salt Lake City, Utah. Green’s worked with the same bank since 1970, and his employees have benefited as well when they needed services such as auto loans and home mortgages.
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, entrepreneurs don’t understand the restraints and needs of bankers. Early in the food chain, a company’s capital should come from private investors, such as family and friends. Later, professional investors, such as venture capitalists, can be tapped. Only when the business has solid assets and a steady track record is it ready for a banker.
Owners of emerging businesses often ask for too much too soon. Bankers, by law and temperament, aren’t 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’ll get it back, because the rewards can be large if the business succeeds. However, lenders such as banks don’t have the same lucrative potential. Even if the money lent puts the borrower on the fast track to success, the most a banker can expect to get back is the capital (plus interest) in timely payments. Until the banker and entrepreneur speak on the same wavelength and understand each other’s vantage point, a good relationship can’t exist.
Communication—or lack thereof—is probably the greatest area of weakness between entrepreneurs and bankers. When the news is bad, owners tend to shut down lines of communication, thinking the banker will be upset. While the banker may understandably be concerned, his/her reaction will be far less negative than if he/she isn’t told what’s going on. Not all weaknesses rest with the business owner, however. Bankers frequently change jobs, so many may be unfamiliar with their customers and wary of extending credit even when the company is deserving.
Creating a good relationship
Clear, frequent, open lines of communication are a necessary component of a strong owner-banker relationship. 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’s more involved than mailing out financials, however. Invite your banker to tour your facilities, recommends Scott Clark, author of Unleashing the Hidden Power of Your Growing Business. And, he warns, don’t extend the invitation just before you ask for a loan, as that will arouse suspicion. Call your banker when something important occurs, such as gaining a major account or a major competitor. Always put your comments down in writing 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 up-to-date.
Just like any relationship based on trust, this one requires time. Don’t ask for favors at the beginning. First give the bank your business and even try to bring in other accounts, which will create good will you can capitalize on later.
Find the right one
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, since upper management tends not to change jobs as frequently.
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.
Once you choose your banker, consider him or her a friend, ally and consultant, but not necessarily a confidant. If something bad happens in your business, try to determine the cause and develop a plan for remedying the situation before talking to your banker. No business is perfect, so it’s unrealistic for a banker to want to know everything that’s happening.
What a banker wants to know
To maintain a good relationship with a banker, you must demonstrate professionalism and competence, says Henry W. Gardner, vice president at Bank One in Salt Lake City. According to Gardner, when a business owner asks for a loan, this is what a banker wants to know:
• How much money do you want to borrow?
• How will the money be used?
• What primary source will generate funds to repay the loan, such as selling a
building, selling inventory or increased business?
• What is the secondary source of repayment, such as liquidation of equipment or
injection of additional capital by the firm’s principal?
• How will the loan be secured (collateral)?
• Who will guarantee the loan? (The owner should be taking more risk than the
banker.)
The three “Ts” of a good banking relationship
Mitch Hurley, vice president and manager at First Security Bank of Utah, says banking relationships are built on the three Ts:
Talk: For a relationship to thrive, the business owner needs to communicate regularly with the banker. The talk must be frank and open, even when reporting a negative development.??
Time: A trusted relationship takes time to grow. Don’t rush it, and don’t expect it to bear fruit immediately.
Trust: With honest, frequent communication and time, trust develops, which is “the foundation of the relationship,” emphasizes Hurley. When trust exists on both sides, the relationship has the crucial component to make it a lasting one.
Source: U.S. Small Business Administration
