As a business partner, a lender should understand your business and its needs, says Mike Dalton, vice president of commercial lending at National Bank and Trust. But often business owners don’t consider other banks until they have a problem.
“In a lot of cases it just gets to be old habits. ‘This is what I’ve done since when I started my company. I see no reason to change.’ But quite often there is a reason to at least look at another bank,” Dalton says.
Smart Business spoke with Dalton about how to evaluate your banking relationship to determine if you should switch banks.
What should you consider when choosing a bank, and how often should you re-evaluate where you bank?
There are three categories you need to look at:
- The relationship you have with your contact person.
- Do the products and services the bank offers fit your company’s needs?
- The stability of the bank, both from a financial standpoint and its direction.
At least every few years you should look at some options. If you have specific concerns with your bank, then that’s always a reason to re-evaluate.
What questions should you ask when reviewing a bank?
The important thing is to go back to those three things previously mentioned. You want to look at the relationship you have with the individual you’re going to be dealing with because your lender is truly your business partner. You need to have a good communication stream. Look at his or her background and experience. Does he or she have experience in your industry?
How do you determine what you need from a bank?
That falls back to the relationship; a good lender is going to ask you about your business. If you have a lender that’s just an order taker, that wants to ask you if you want fries with that Big Mac, then you’re probably with the wrong person. You need somebody that’s going to ask you about what products and services you use, what kind of pain do you have in your business. If there are needs that aren’t being met, a good lender can come up with solutions — a product or service that would make something easier for you and your company.
For example, a prospect comes in, wants a loan and provides financials. He or she may be overextended or can’t get what he or she is looking for, so the prospect and the banker need to have a conversation. The banker should tell the prospect, ‘We can’t meet that request right now but here’s a path to get there.’ Commercial lenders especially need to be an adviser for your company, by saying ‘Here’s another way of doing it.’ Or, the lender could help with a plan to get your balance sheet or your income statement in the condition it needs to be in.
The first thing a commercial lender should do with a new customer is sit down with the business owner. Financials aren’t always discussed in the first conversation. It’s more about developing the rapport and getting to know each other. For the banker, it’s about learning the business that you’re in and what you’re looking for in a bank.
What should you look at when evaluating a bank?
A majority of banks are publicly traded companies. Look at their annual reports, the balance sheets, etc. If they’re not a public company, go into the bank and ask to see their reports. The best way is to consult your CPA or attorney and ask for a referral. Your CPA is always a good referral source in that aspect and a good first step.
How do you know a bank will stick by you in tough times?
That’s an impossible question to answer, unless you know someone who has been a client at that bank and gone through a hard time of their own. No banker is going to tell you that if it’s tough times they’re going to ask you to leave the bank, but there are certainly some banks with that history. Ask your individual lender if they have other clients that are experiencing difficult times; how did they interact with them and what was the result of that transaction? Any commercial bank will have had a couple of different clients that have been through some very tough times in this down economy; so, did they work with them or find a way to get rid of them?
How important is it to have loan decisions made locally?
It makes a big difference, as opposed to an underwriter halfway across the country strictly looking at the numbers. When you deal with a local bank, local people who know your market and conditions make decisions. If there are questions they can come out to your facility and sit down with you, rather than you having to go to them.
Should you start a banking relationship before you have a pressing need?
When someone comes to a bank with pressing needs for equipment or an expansion, it could be a red flag. It may seem as if the company wasn’t planning ahead for this need. Or, maybe the bank it was with didn’t want to finance the project. If you think you might have a need coming up that your bank can’t meet, start looking. Think about how often you talk to your banker. If you’re not having regular conversations and they’re not meaningful conversations, then you probably have an issue. As banks, we like to do business with people that we know, so developing a relationship is important.
Mike Dalton is vice president of commercial lending at National Bank and Trust. Reach him at (937) 382-1441 or [email protected]
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