Building a solid relationship with a financial institution
Although many small business owners believe that all banks are alike and their money is just another commodity, nothing could be further from the truth. Banks can be easily differentiated. Based upon size, the regions they serve, the number of specialized departments, the industries and sectors they serve, and their general prestige, banks are as dissimilar as the people who run them.
Choosing a Bank for Your Business
Ultimately, the key factors that a small business owner should consider when selecting or changing banks are:
The bank's income source. Where does the bank earn its profit? If the bank earns its money through mortgages or personal savings, your business's loan request won't have a high priority.
Ability to work with small businesses. Some genuinely like to work with smaller companies and see it as an opportunity to serve the community. Other banks, however, can view startups as a bad risk.
Reputation for staying in when the going gets rough. You can get some valuable insight into bank behavior by talking with entrepreneurs who have been in business for a decade or more. Their personal experience may speak volumes about bank behavior.
General creativity of approach. Do bank representatives look only at your balance sheet? Or do they suggest constructive financial alternatives, such as rotating receivables financing, factoring, leasing, or negotiating contract advances?
Most business owners fail to thoroughly consider their needs when selecting a bank. Remember that you are the bank's customer and they will compete for your business relationship. Before making a final decision, you should understand the bank's policies on:
The types of products and services that are offered
The criteria for qualifying for a loan
Their interest rates and charges for account services
When selecting your financial institution, use the same due diligence that you employ for selecting any professional service provider, such as your accountant or lawyer.
How do I research a bank?
Compare financial institutions to find the one that will serve your business's needs while providing support during the difficult times. Selecting a bank that you can work with, matches your needs and understands your business is especially important as your business grows.
Approach the decision as a long-term investment.
Ask your accountant or lawyer to introduce you to bankers with which they are familiar. Ask other CEOs if they would recommend their banker, and problems they may have had working with a particular bank.
Check with your local chamber of commerce to find out what banks are active in the community.
Look for a complementary personality--a banker to whom you can relate, one that understands your motivations for the business, and will represent your interests within the bank system.
Meet and interview the banking team. Most often the banking center manager, loan officer, and money management specialist will all be different people supporting your business banker.
Find out how long they have been in their current position (bank managers and officers change locations and get promoted). You want the most experienced person available and one who has a strong reputation within the bank to represent your business.
It's unlikely that you will make a decision on pricing alone, but do compare interest rates on deposit accounts plus basic consumer loans. Most business loans are negotiated and the rates aren't posted. Also, look carefully at the charges for services if your commercial deposit account will be billed on analysis.
The Role of your Bank
Remember, it is a good idea to establish a relationship with a banker before you need money. The right banker will be someone that understands the needs of your growing business. Consider some of the things with which your banker will help:
Assist you with your company's cash management needs.
Offer cash management and investment products of varying types, risks, and maturities.
Provide advice regarding what it will take to qualify for the loan that best meets your needs.
Provide special loan programs for small businesses, including SBA loan programs and other government-guaranteed or agency loans.
Help you find financial information on your industry, partners and customers.
Become a business advisor and help you work through the financing implications of your business plan and decisions.
Establish and Maintain the Relationship
Don't just look for a bank; look for a banker. For the owner of a small business, getting close to the people who run your bank can provide valuable community networking opportunities. Developing a friendship with your banker takes time and trust. To create a lasting alliance, you need to be open and stay in contact.
Invite the banker to visit your company periodically.
Under-promise and over-deliver operating results.
Establish a good track record before asking for favors.
Report significant and/or negative developments proactively. Don't wait for the bank to call you.
While it's important to let your banker know when unforeseen events are affecting the business, don't call until you have all the facts and have developed a strategic action plan to address the change in the business.
Like all other relationships with business advisors, finding and building a relationship with your bank takes reflection, time, and effort. Carefully analyze your company's banking needs, investigate financial institutions that enjoy working with small businesses, and work diligently to build a positive relationship. This effort will establish an alliance that will benefit you and your business in good times and bad.
