Commercial banking today isn’t just about loans, it involves a partnership with a bank that helps build a business.
“Probably the most overused word in banking right now is relationship; everyone talks about it,” says Paul Duren, senior vice president at Bridge Bank. “Several data collection agencies even changed their terminology from ‘standard commercial loans’ to ‘relationship loans.’ But what exactly does that mean?”
Smart Business spoke with Duren about what relationship banking means and how it can translate into improved customer service as well as increased profits for your company.
What makes for a good banking relationship?
A good relationship involves a banker bringing value beyond providing access to capital. Businesses need a banker who understands their business — one who takes the time to learn about your vision so he or she can fully understand your goals. A proactive banker can anticipate your needs and bring information and services to help you grow or run your business.
In a good banking relationship, the banker acts as your advocate within the bank. However, much of the banking industry utilizes centralized credit processing and call centers, so there isn’t always the personal touch that a good banker will provide.
Can you provide an example of how this relationship works?
There was a drink manufacturer that saw a need to take its product from powder form to liquid for store shelves, and needed additional capital to do so. The banker saw the vision and understood the potential market for the product. That extra capital turned the company from a small manufacturer to a major player in the sports nutrition industry, and it started with an injection of capital from a loan made possible because a banker understood the vision.
Has banking changed since the recent recession?
It definitely has. There’s been growth in lending, but there’s also been a shift to more small and medium business sector loans coming from small and medium-sized banks. According to the Small Business Administration, big banks controlled 31 percent of the small business loan market in 2005, and that grew to 39 percent in 2009. That trend has reversed and small banks are gaining more share of that market. A Federal Reserve Bank of Boston study showed that smaller institutions continued to lend to small businesses at a stable rate during the recession, whereas big banks cut back.
Small to medium-sized banks are more invested in the community and more invested in the small business owner. For that reason, they are more likely to provide financing. Bigger banks focus on large companies in order to move their numbers. A smaller bank can get the same percentage growth through smaller loans. In one of its papers, the Federal Reserve Bank of Boston talks about how community banks are better at the soft skills — understanding the vision of the business owner, how he or she operates. Small banks take the time to listen.
What are the benefits of a good banking relationship beyond access to capital?
When people talk about relationships, they focus on the loan. What gets neglected is the deposit, or treasury management, side of the relationship.
During the downturn, businesses were looking for ways to get more out of their existing systems. Banks can help them do that with data feeds and other ways that save significant time and money. A good relationship banker also reviews the customer’s systems.
An experienced relationship banker has a toolbox filled with solutions to help his or her clients. This business is still about people, and banks need to be in touch with their customers and the community.
Paul Duren is senior vice president at Bridge Bank. Reach him at (408) 556-8688 or [email protected].
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