Communication is the lifeblood of any strong relationship, including the one that develops between a business and its bank.
One of the keys to maintaining that strength through the ups and the downs is the willingness of the business leader to remain transparent when the times turn tough, says Jeffrey M. Whalen, senior vice president and market manager for Specialty Markets at Bridge Bank.
“Your bank doesn’t know your business as well as you do,” Whalen says. “When a difficult situation arises, you need to keep your bank engaged in what’s happening so you can work together to find solutions. Companies get into trouble when they try to hide problems, putting the bank in a difficult spot.”
Transparency builds trust and boosts your chances of getting the help you need, when you need it.
“If you reach out to your bank when you run into trouble to set up a meeting, a relationship-oriented lender is going to reciprocate by reaching out to you on a regular basis to check in and see what it can do to help you,” Whalen says. “The strength of that relationship is critical for the financial well-being of your business.”
Smart Business spoke with Whalen about how to build a strong relationship with your bank.
What are some key steps you can take to increase the likelihood of securing a loan for your business?
Show your financial statements to the bank, even if your company has not been profitable. The numbers are what they are and you don’t want to hide them. Every company faces challenges from time to time. The key is your ability to develop a plan to turn things around and work with your bank to fine-tune that plan to give it the best chance to succeed.
Within most banks, there are different divisions that might be better suited to helping a company that finds itself in recovery mode. The difference is that some of these groups might be more aggressive in the way they collateralize your loan.
These groups want to see diversification in your receivables to prove that you’re not too reliant on one customer for your revenue.
If you pursue financing through the U.S. Small Business Administration, the bank will likely want real estate as collateral. The key is that you keep your bank engaged and work collaboratively to find solutions.
The more communication you have with your bank in terms of full disclosure, accurate and timely historical financials and an affiliation with a well-known CPA firm is going to increase your likelihood of securing a loan.
What are some signs that you have a problem with your bank?
If your bank is not checking in with you regularly on the progress or success of your business, that’s a red flag. Another concern is when you have to keep retelling the story of your business to your banker or if you have a new relationship manager each year.
Either they don’t trust you or they don’t understand your business. When those things happen, you’re going to want to have all your data ready and available for the next banker because you’re probably going to need to start shopping for one.
What are some common mistakes that can get a business in trouble with its bank?
When a bank extends a line of credit, there are typically four or five covenants that you cannot violate. If you violate those covenants and don’t have a conversation with the bank about how to get back on track, that is going to get you in trouble with your bank.
A line of credit is extended for a specific purpose and when you use it for other expenses, it can hurt your business. It’s also a problem if you take too much money out of the company and cause the net worth to erode. The bottom line is when you maintain a regular dialogue with your bank, you can avoid many of these difficult conversations. ●
Insights Banking & Finance is brought to you by Bridge Bank