Consumers can easily compare banks based on checking account fees, interest rates and the convenience of ATM locations. Business banking needs are more complex, so it can be difficult for business owners to understand the range of services available from banks and the value they provide. In fact, companies are much more likely to work with multiple commercial banks than they are to work with multiple providers of other types of financial services, such as securities firms and investment banks, according to data from the Business Banking Board. But does that need to be the case?
Smart Business spoke with MB Financial Bank senior vice president Steve Towne, who heads the bank’s business banking and retail lending operations, to learn about the value of business banking services and how companies can develop a more productive relationship with their bank.
What are some ways a bank can help businesses that owners might not be aware of?
Banks add value to businesses by helping them understand their financial requirements. Take, for example, someone who wants to borrow $100,000 to expand a small business. After the banker sits down with him/her and goes through what the funds will be used for and how it can produce a return, the banker and the owner often determine there is a different need. This also comes up when companies want to borrow money to buy a piece of equipment. A good banker helps match the need to the debt structure.
When companies get turned down for a loan, they go to another bank. It often takes conversations with several bankers before the owner realizes that he or she isn’t just being told ‘no,’ it’s that the loan or requested structure is not right for the business. Businesses should consider their banker a trusted adviser, like their attorneys and accountants, to guide them to the appropriate product and structure.
Bankers also help make owners aware of all their options. Banking has changed in the last 20 years in that products that used to be available only to the largest companies are now readily available to small and mid-size businesses. For example, a whole range of credit and treasury management products — such as international letters of credit, foreign exchange service, ‘positive pay’ checking for fraud prevention, automated sweep accounts and more — weren’t available to smaller businesses or were very expensive. There are also more information and reporting services available. As technology changes, these services become more cost-effective and available for all businesses.
How can a business compare banks?
Location is a prime consideration, but it really is about convenience. With the online banking and electronic services available today, location is not the only thing that defines convenience.
You should look for a banker that comes to you with ideas and shows some understanding of your business. No one knows everything, and that applies to banking services. Entrepreneurs tend to be strong personalities, so often they’ll give the bank a list of services they need. You do not want your banker to be an order-taker. The banker should look deeper and be prepared to recommend other services or products that you may not have considered.
Flexibility is also important. If problems come up in your business — and they will if you’re in business for any length of time — can your banker make changes to your services to help you address the problems? You need to ask yourself: ‘How can this bank help me make money and/or save time?’
What are the common misperceptions about business banking?
Small businesses shouldn’t be overwhelmed with preparing voluminous presentations for their banker or other advisers. They should expect their banker to sit down with them and talk through the potential opportunities and pitfalls that the company could face and what actions they would take.
Generally, companies can only borrow against an asset. With small businesses, banks are looking for business or related assets to cover the loan. Conversely, businesses can borrow against an idea and get a loan for more than assets; however, they need to show a track record of performance and potential.
Another is that companies want a loan so they can hire more people to increase sales. That can be OK, but a lot of times the company is actually dealing with an issue other than revenue. If the business keeps trying, it can probably find someone who might loan money, but often it’s not the right thing for the business. That’s why it’s important to work with a banker who is a trusted partner.
As the financial expert on your team, he or she will help you grow your business, reach out to new markets, invest wisely and manage your money.
STEVE TOWNE is senior vice president at MB Financial Bank in charge of business banking and retail product lending. MB Financial Bank offers a wide range of commercial banking, business banking, treasury management and wealth management services. It has $7.9 billion in assets and is one of the largest locally-operated banks in the Chicago area. Reach Towne at email@example.com.