This article from Andy Birol, Contributing Writer at the Atlanta Business Chronicle offers excellent advice for your search for a commercial banker. Here are find simple points to keep in mind if and when you enter into debt financing.
As long as capitalism survives in the United States, there will be bankers and business owners. Whatever the stage of the business cycle, one will need the other more. If bankers are lending freely, there’s a good chance owners don’t need to borrow (and the reverse is true).
While bankers and owners need and value each other, few supplier/customer relationships are as complicated and fraught with angst. Owners fret about the strings, bureaucracy and inattention accompanying the money they borrow. To many owners, loan officers are seen as temporary caretakers with neither the time (nor incentive) to understand their customer’s business.
Conversely, every bank president I have met — in spite of his or her regulatory and lending constraints — insists they are the bank for business owners and direct their officers to make business loans. They lament over how overbanked and rate-driven their market is. And they are right that smaller businesses rarely understand the banking industry’s approach to financial management, risk and working capital.
Small-business owners need bankers who will give them the financial expertise they cannot afford to develop internally. Here are my five key ways for you to bank on your banker:
1. Accept it’s the bank’s money and not yours
A bank’s first obligation is to protect and control the depositors’ money. Bankers often finance up to 50 percent of their client’s balance sheets but only 10 percent of the business’ costs. They can feel like they’re more concerned with protecting a company’s assets than the owners.
So be a good customer. When you take their money, understand that paperwork and record-keeping is critical. Loan officers are evaluated first on how they protect the bank’s money. Unlike other investors, they won’t try to run your business as long as you do.
2. You are not a bank’s customer. You are its supplier
Think of yourself as the supplier (of a good credit risk) to your sales rep (the lender) who must sell it to his customer (the credit committee). This will help you set your expectations realistically.
The credit policy committee’s decisions are based on the bank’s overall financial needs as often as they are on your creditworthiness. Don’t take it personally when their decision appears to disregard the obvious. No aspiring lenders will jeopardize their career by going against credit policies of their employer.
3. Bank on loan officers, not their banks
Banks quickly copy each other’s products and services. Your contact makes all the difference. When deciding on a banker, pick the individual who has substantial tenure and business acumen outside of banking. The best lender for your small business is rarely the hard-charging, promotable, fast-tracker. The tenured expert who loves working with businesses is the far more valuable choice.
Unfortunately, the average banker covers more than 250 customers. It is harder to keep an eye on your business than to get you the lowest interest rate. If your business is so dependent on debt service that even a quarter-percentage point can make or break your company, don’t blame this on your banker.
4. Don’t settle for “service.” Demand expertise and advice
If your banker is only a middleman and expediter, that doesn’t add value to your business. Worse yet, if you call your banker after months of not talking and frantically ask for an increase in your line of credit to make payroll, shame on you both!
Your banker should proactively ask open-ended questions, such as how will you make payroll if you lose an account or production capacity? Your conversation should lead you both to agreeing on an overall financial strategy and contingencies. Then you know you have the right banker.
5. Buy on price when the value is not available
If you can’t get the expertise you need in a lender, then shop for the lowest rate. Think of your banking relationship as an “outsource-before-you-in-source” decision. As you grow in financial complexity and embrace the disciplines your lender taught you, hire a treasurer or chief financial officer with the expertise to bring your rates down.
Whether your business and personal philosophy is to borrow and leverage your balance sheet to success, or to pay-as-you-go (spending only cash to purchase assets) a banker will always be in your life.