Banking on Your BankerMention "banker" to business owners or "business owner" to bankers and you are sure to spark a reaction. Having worked with hundreds of each, I marvel at the shape of such a critical and ancient relationship in this day and age. While bankers and owners need and value each other, few supplier/customers relationships are so complicated and fraught with angst. Owners vex over the strings, bureaucracy, and inattention that accompany the money they borrow from bankers. To many owners, most loan officers are seen as temporary caretakers who have 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 lead their lenders to do so. They lament over how "over-banked" and rate-driven their market is. And they are right that smaller businesses rarely understand banking, financial management, risk, or working capital.
Because of these disconnects, bankers and smaller business owners rarely profit from the synergy of their respective positions. The shame is, together they could become a powerful partnership. In our economy, an emerging business' credit, deposit, and processing needs make them a bank's best prospective customers. And bankers can offer not just fair rates but provide needed counsel and guidance to smaller businesses that are typically unsophisticated borrowers and often less rate-sensitive. So why can't business owners find lenders who will provide more value? And why can't lenders convince owners to look beyond the interest rate and see how much more a bank can provide? With interest rates still relatively low, rather than shopping for the best rate, smaller business owners need to find the banker that will give them the time and expertise they cannot afford to create internally. For their part, bankers need to be capable and eager to provide far more expertise and understanding of the business owners' needs. So as an owner, here are my five key ways for you to bank on your banker:
1. Accept it is the bank's money and not yours. A banker's first obligation is to protect and control their depositor's money that they are lending you. Bankers often finance up to 50% of their client's balance sheets but only 10% of the business' costs. They can feel that they are more concerned with protecting a company's assets than the owners are. So be a good customer and when you take their money, understand that much of the "paperwork" and record keeping is a critical discipline to internalize. Your loan officer is always evaluated first on how he protects his or her bank's money. And, 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 their 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) and your expectations will be realistic. Furthermore, it is important to understand that the decisions of the credit policy committee just as often are based on the bank's overall financial needs as they are on your credit worthiness so don't take it personally when their decision appears to disregard the obvious. No aspiring lenders can or will ever jeopardize their career by going against credit policies of their employer.
3. Bank on your loan officer, not his or her bank. As all 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 in their position and hopefully some business acumen outside of banking. The best lender for your smaller business is rarely the hard charging, most promotable, fast tracker, but rather the tenured expert who loves working with businesses more than his own political bureaucracy and may be perceived as a rebel within their own institution. Unfortunately, the average banker covers over 250 customers so it is harder to keep his eye on your business than to get the lowest interest rate. If your business is so dependent on debt service that even a quarter percent can make or break your company, don't blame this on your banker but rather examine if your Best and Highest Use is sufficiently valued by your target market.
4. Don't settle for "service." Demand expertise and advice. If your banker is only a middleman and expediter, he or she may call this "good service" but it doesn't add value to your business. Worse yet, if you call your banker after months of no talking, and frantically ask him to increase your line of credit so you can make payroll, shame on you both! Your banker should be proactively asking open-ended questions, such as how will you make payroll if you lose an account or production capacity and follows that up with more questions which lead to you and she agreeing on an overall financial strategy and contingencies, you have the right person.
5. Buy on price when the value is not out there. If you can't get 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 sophistication and embrace the discipline your lender has taught you, hire a treasurer or CFO with the expertise that will also bring your rates down.
Over these last few years, credit has been ample and virtually free in this low-interest rate environment. While many banks are vying for your business, demand a fair rate and the right banker. If you can bank on your banker and you and your business will be better off.