Stop for a minute or two and think back to what you learned about the banking industry during your childhood. Your parents probably introduced you to the concepts of deposits and checks and balances. You learned how to make the numbers work. Now think about what you learned about the industry during your years on campus and in the classroom. Some professor probably lectured to you about loans and liens and interest. You learned enough to earn a good grade and get out in the business world. And what did you learn about the industry after you established yourself in that world? You probably learned that a relationship with your banker is important, that surprises are bad and that communication is the key to just about everything.
Well, good. Keep all of that information in mind because so much of it remains relevant and important today. But so much more of the information that you learned during your childhood and your education and your years in business is now better left in the past, thanks to the lingering memories and results of the financial fiasco that rocked the economy for the better part of two years.
As we climb out of the fiscal wreckage of 2008 and 2009, the banking industry is in the middle of a new landscape. After what seemed like one bank sale, merger or closure after another, there are now fewer banks across the nation. And after thousands and thousands of businesses defaulted on their loans, banks of all sizes became more prudent in their lending practices.
The financial future continues to improve, but the present might be difficult for some business owners.
“There is an approach of going back to basics,” says Jeff Douglas, executive vice president, commercial banking, Fifth Third Bank. “Today, it’s really about cash flow, about margins, about how well you’re managing your expenses. From the banker’s side, it’s about cash flow coverage, about assets. We’re operating in a time of less uncertainty than we had six to nine months ago. There are still some issues out there that give people pause, but it feels like it’s at least stabilized. It doesn’t feel like it’s getting worse.
“Banks are in much better shape than they were. We’re out there; we’re looking for new business. But it’s all about that basic blocking and tackling, what the financials tell us and how the management teams have responded to the challenge. We are going back to basics in the way we’re trying to approach things.”
Ask the right questions
Communication with your bank and your banker is as important today as it was 10, 20 or 50 years ago and, of course, with smart phones and the ability to talk almost immediately with just about anyone anywhere in the world at any time, communication has never been easier, either. But sitting down with your banker in person rather than over the phone remains the best and most effective means of communication, even if it might feel like some sort of lost art. That goes both ways, too; you should want to meet with your banker in person, but he or she should also want to meet with you.
“It is imperative for businesses to work closely with their banks to maintain healthy and productive companies,” says Todd Barnhart, senior vice president and manager of deposits, PNC Financial Services. “The better your bank knows you, the better they’ll know your business. It’s important to keep an open line of communication at all times, not just when it’s necessary to conduct your business. At the minimum, businesses should consider sitting down with their banker for an annual business review.”
It’s important for you to ask the right questions, too, especially if your bank merged with another bank during the recession or if it closed its doors and left you looking for a new bank.
For example, what will the bank offer you in terms of its resources? Will you work with one banker or with a team? As your business grows and changes, will the bank be able to help you meet your evolving needs? And how will the bank support you during your growth or expansion? Will the bank and your banker be proactive and visit your offices or locations in order to learn more about your company and provide trusted advice? Or will the bank offer nothing more than answers to your banking needs?
Think of that first conversation like a first date, of sorts. You want to learn as much as possible so you can determine whether to go out on a second date. If all goes well, maybe those dates will turn into a long-term relationship.
“There’s an increased emphasis on relationship, and the importance for a small business owner of having a relationship with the bank and not to view banking as a commodity, because when times get tough, you really need to have that relationship,” says Matthew R. Wyner, senior vice president, business banking, KeyBank. “From a banking standpoint, there’s been an increased emphasis on the importance of rolling up your sleeves, getting down in the trenches with customers and really understanding the challenges they’re facing and what they need to be doing to be successful.
“If a company is having challenges, if they’re being proactive in communicating that and making sure there are no surprises, those are the relationships we’re able to work the most effectively with.”
Prepare for economic change
On the surface, at least, the economy has started to turn. You need to look no further than the Bureau of Labor Statistics for proof of that. The unemployment rate either held or dropped each month from October 2009 through February, down to 9.7 percent from 10.1 percent. But talk with enough bankers and the picture comes into clearer focus.
Banks are still lending money. Banks want and need to lend money. It is, after all, one of their major sources of revenue. But according to a panel of experts, the number of loans and the amount of money requested during the last 12 months dropped significantly, and among the businesses that continued to request loans, more defaulted than normal. That led to banks examining financial statements and trends more closely. It also led to the perception that banks were holding onto their money.
“Obviously, bankers have gotten a rap in the press about not wanting to lend money to small businesses and not wanting to help small businesses,” Wyner says. “But I think the opposite is true. Many of my peers are actively out there looking for opportunities to work with people. I think there’s a greater sense of the importance of the relationship on both sides.”
Now, with fewer banks in the marketplace, some banks can be more selective. But most are actually more open now to lending and are more forgiving. Ask around and you might find that many are breaking down the last year of financial statements for businesses seeking a loan, examining each month in search of positive trends, rather than just glazing over negative numbers from the last two or three years. Other banks are adding business bankers. Still more have recently committed billions to small and medium businesses.
The time is right to work with your bank. Just ask.