How businesses can benefit from banking with smaller institutions

Finding a bank for your business is different than applying for a car loan. Instead of just needing a source of capital, you also need a partner that can help your business grow.

“You’re looking for a relationship that will allow your business to prosper,” says Andrew M. Phillips, vice president, relationship manager at Bridge Bank.

Smart Business spoke with Phillips about how to find the right bank for your business.

How does an owner find a bank that fits his or her business?

First, look for a bank that is truly dedicated to serving businesses. Long lines for tellers and heavy branch traffic may indicate that bank caters to personal accounts. A true business bank will likely have a lobby that’s much more open, with employees sitting at desks rather than behind teller windows. There’s less activity there because most business is conducted out in the field, at client offices or job sites.

Another consideration is size. If you need to borrow $500 million, your choices are going to be limited to big banks. But if you’re a small to midsize business you should look for a smaller bank that shares the same vision and spirit as you.

If a bank has the capacity to lend $500 million, it can certainly take care of your $2 million loan request, for example. But you’re going to be a small fish in a big pond, and you probably won’t get the service that you need for your company. That same $2 million loan is very important to a small to midsize bank, as will be your relationship.

What are the advantages smaller banks can provide?

Do you want to shape your company to fit lending requirements and other parameters of a big bank, or do you want a bank that shapes its requirements to fit your company? By virtue of their size, certain smaller banks can be more adaptable to the unique needs of the businesses they serve. They can be more flexible and offer solutions customized to fit individual businesses instead of broad-brush, pre-packaged solutions to fit a particular business sector, for example.

Every bank will say they have expertise in your industry. But don’t let this be a substitute for a banker taking the time to learn your particular business, which isn’t exactly the same as your competitor’s. The right bank can do a lot to help you maintain the edge that helps you thrive.

A smaller bank doesn’t have a prepackaged program that says, ‘You’re a distribution company that has $10 million in annual revenue, so you need a $2 million receivables line of credit and up to $1 million of term debt.’

They look at each client, how they do business, and determine what advantages can be provided that fit into their way of doing business. For example, can they take discounts from vendors that they aren’t taking? Do they need to finance a piece of equipment at a shorter or longer term?

Once you’ve decided the right size of bank, how do you choose one?

Talk to business colleagues about their experience and find a few banks that make sense and are a good fit for your business. Some banks do have expertise in certain industries and if you have one that’s particularly good with yours, start there.

Then, meet with a few bankers and get to know them. It’s not enough to send a package and see how your needs fit with the bank on paper. You need to discuss your company’s history — where it has been, where it is now and where it will be in the future. It’s important to provide your financial history, but it’s just as important to outline what and where your company is, its goals, and the ambitions and desires of the people running it.

That will help to ensure a good fit. People have different priorities, and a bank needs to know those priorities to put together a customized solution.
It takes a lot of time to do this process properly, but a good banking relationship is worth the effort.

Andrew M. Phillips is vice president, relationship manager, at Bridge Bank. Reach him at (408) 556-6575 or [email protected].

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