There is a misconception these days
among some small-business owners that a banking
relationship is not as important as it used to
be. They feel that interest rates are extremely low,
loans are hard to come by, and even credit lines
are difficult to secure. These businessmen look at
a bank in the traditional sense: a place to deposit
money, write checks and basically manage their
cash flow. For banks, building their deposit nest is
extremely important, as the business of banking is
all about floating money.
Yet, when you speak to some of the leading
CPAs in the community, they make the case that
a good banking relationship is essential. They recommend
forging a good relationship with a senior
bank official. I met a young man, Zalman, who was
in the construction business and also had the attitude
that “a bank is a bank, period.” He never forged
a relationship with a vice president at his bank but
simply used their ATM, made deposits with his
phone, and reordered checks when his check supply
was running low. But, says Zalman, he recently
found out why a banking relationship is necessary.
It seems Zalman received a check for $27,983
that bounced. He wrote checks to subcontractors
for nearly that amount for a job he had taken
on and which was now in jeopardy because of the
returned checks. Zalman scampered into his bank
in a panic and bared his soul to a senior
vice president. To his surprise, the bank
official took the time to get to understand
his business before even addressing his
immediate problem. After more than an
hour, the bank official agreed to honor the
checks he had written for a few days. This
turned out to be critical, as it took Zalman
that long to get a new good check from his
client, but at least he knew that the bank
would honor the checks he wrote.
Zalman’s new friend also waived the
overdraft and returned-check fees. As
their relationship developed, the banker
found Zalman a better interest rate while
his money was sitting in the account, and
he even was able to secure a $50,000 line
of credit, all benefits that Zalman had
never considered.
There are many instances, similar to
Zalman’s, where a banking relationship
can be invaluable. It is amazing how much
discretion to act a banking official of rank
can have. Their broad knowledge of the
financial world is invaluable and is yet another reason why such a relationship can be critical. For businesses with international interests, the
banker can help find transfer institutions and can
deal with letters of credit by overseas companies or
by shippers.
A good relationship with a banker can lead to other
benefits. Zalman himself told me that several months
after his near-disaster, “his” banker (that’s how he
refers to him now) introduced him to a potential
supplier who was “young and hungry and prepared
to offer him excellent prices on materials.” A good
banker is proactive and reaches out with any opportunity
that might help the business. This banker will
know the business well, will most likely have visited
the company, and don’t be surprised if he attends the
wedding of the business owner’s daughter.
While banks today appear on the surface to be
cold and impersonal, within the walls of the building
there may be employees with whom a good relationship
can be built. The more the banker understands
the business, the more help a business will be able to
get from the bank. In fact, when Zalman was ready
to put together a retirement plan, he took the time
to check first with his banker before returning to the
financial planner.
Zalman also found out that a small competitor of his
was somewhat in trouble and he sensed a good opportunity
to acquire or merge with that business. Not only did the
banker make the connection, he helped Zalman through
the due diligence process and was in touch with Zalman
and the other company’s attorneys to discuss their banking relationships.
Research shows that many small businessmen
select banks based on many factors such as location,
convenience, and perhaps interest rates (although
it may be just a fraction higher than a competing
bank’s). Financial advisors say that getting a recommendation
from someone who has a good banking
relationship is probably the most important factor
that should guide the choice of a bank.
Like all relationships, the best models are those
that are mutual and where everything is laid out on
the table. Just as it is important for the banker to
know everything about your business, it is equally
important for you to know everything you can about
the banker. Of particular interest is his financial
background, to give you a better idea of exactly what
the banker’s expertise is. It is equally important that
the client be completely honest with the banker, not
hiding facts that may embarrass him or her.
A good banker understands that there are ups
and downs in a business. It’s a fact that almost every
business experiences some kind of crisis, usually
financial. So it is extremely important for the
banker to come through at precisely the time when
you need him most. That fact alone converted Zalman
to understanding the importance of a banking
relationship. He understood that a bank is not just
a physical building, but should be part of a good
human relationship.
It is extremely important that, when you are satisfied
with your banker, you send more business that
way. He or she will, after all, be judged on the new
business they bring in, and any recommendation
you offer will be well received.
A manager you have a good relationship with will
also refer business your way. After all, the banker
knows your business and can readily make a referral,
knowing just how good your business is. It is
equally important to let your banker know of any
changes in the business, new ideas, and successes.
This will help them really understand your business
and make sure you take advantage of opportunities
that may come the banker’s way.
As Zalman found out, the absence of a good banking
relationship can have dire consequences for a
business. One banking relations manager says that
the one client he is not looking for is the business
with perpetual problems. A business that looks at
the banker as an Emergency Room is certainly abusing
the banking relationship. For such a business it
would be a priority to get things straightened out
before reaching out to a banker.
Many of the CPAs I spoke to counseled to have
a “team” of financial advisors that should include
the accountant, business consultant and, yes, the
banker. You can always designate one of these to be
your chief financial advisor, but do not minimize the
importance of a good banking relationship.