Stop for a minute or two and think back to what you learned about the banking industry during your childhood. Your parents probably introduced you to the concepts of deposits and checks and balances. You learned how to make the numbers work. Now think about what you learned about the industry during your years on campus and in the classroom. Some professor probably lectured to you about loans and liens and interest. You learned enough to earn a good grade and get out in the business world. And what did you learn about the industry after you established yourself in that world? You probably learned that a relationship with your banker is important, that surprises are bad and that communication is the key to just about everything.
Well, good. Keep all of that information in mind because so much of it remains relevant and important today. But so much more of the information that you learned during your childhood and your education and your years in business is now better left in the past, thanks to the lingering memories and results of the financial fiasco that rocked the economy for the better part of two years.
As we climb out of the fiscal wreckage of 2008 and 2009, the banking industry is in the middle of a new landscape. After what seemed like one bank sale, merger or closure after another, there are now fewer banks across the nation. And after thousands and thousands of businesses defaulted on their loans, banks of all sizes became more prudent in their lending practices.
The financial future continues to improve, but the present might be difficult for some business owners.
“Nationally, our economy is still a little bit stagnant, so we’ve not seen a lot of change there,” says Michael Newbold, regional president, Huntington National Bank. “But I think we might begin to be seeing a glimmer of light at the end of the tunnel because a lot of the small businesses we’ve talked to have indicated that in the next 12 months they’re looking to hire more help. That’s a positive sign and is very different from what we heard a year ago.
“In Indianapolis and everywhere else, small businesses are the fuel that drives the big engine. As small businesses go and grow, so goes the rest of the community. That’s very much a good sign.”Ask the right questions
Communication with your bank and your banker is as important today as it was 10, 20 or 50 years ago and, of course, with smart phones and the ability to talk almost immediately with just about anyone anywhere in the world at any time, communication has never been easier, either. But sitting down with your banker in person rather than over the phone remains the best and most effective means of communication, even if it might feel like some sort of lost art. That goes both ways, too; you should want to meet with your banker in person, but he or she should also want to meet with you.
“I cannot emphasize enough the fact that you cannot communicate too much in a relationship such as the one between a small business client and a bank,” Newbold says. “One of the pieces of guidance I always give to small business clients is to find and develop that close circle of trusted advisers that you need to run your business. From our perspective, use the bank not just as a lending conduit but as a resource for information.”
It’s important for you to ask the right questions, too, especially if your bank merged with another bank during the recession or if it closed its doors and left you looking for a new bank.
For example, what will the bank offer you in terms of its resources? Will you work with one banker or with a team? As your business grows and changes, will the bank be able to help you meet your evolving needs? And how will the bank support you during your growth or expansion? Will the bank and your banker be proactive and visit your offices or locations in order to learn more about your company and provide trusted advice? Or will the bank offer nothing more than answers to your banking needs?
Think of that first conversation like a first date, of sorts. You want to learn as much as possible so you can determine whether to go out on a second date. If all goes well, maybe those dates will turn into a long-term relationship.
“We look for companies that recognize we’re in a difficult time and are looking for ways to cut costs, and we’re looking for ways to help them cut costs,” says Kevin Hipskind, senior vice president, commercial lending, Fifth Third Bank, Central Indiana. “Those that have maintained really strong balance sheets and have cut costs to address some of the economic issues are seeing a lot of opportunities, and we’re looking for ways to help them grow. There are a lot of opportunities out there for growth. It really is a fun time to be out there talking to businesses. As much as there are challenges, there are great opportunities, too.”Prepare for economic change
On the surface, at least, the economy has started to turn. You need to look no further than the Bureau of Labor Statistics for proof of that. The unemployment rate either held or dropped each month from October 2009 through February, down to 9.7 percent from 10.1 percent. But talk with enough bankers and the picture comes into clearer focus.
Banks are still lending money. Banks want and need to lend money. It is, after all, one of their major sources of revenue. But according to a panel of experts, the number of loans and the amount of money requested during the last 12 months dropped significantly, and among the businesses that continued to request loans, more defaulted than normal. That led to banks examining financial statements and trends more closely. It also led to the perception that banks were holding onto their money.
“If you’re a company that’s managed the balance sheet, maintained moderate leverage and has a decent asset base, there are a lot of banks that are really trying to grow loans right now,” Hipskind says. “We’re in a unique environment where deposits are heavy and loans are light, and we make a big part of our money as banks by loaning out money.”
Now, with fewer banks in the marketplace, some banks can be more selective. But most are actually more open now to lending and are more forgiving. Ask around and you might find that many are breaking down the last year of financial statements for businesses seeking a loan, examining each month in search of positive trends, rather than just glazing over negative numbers from the last two or three years. Other banks are adding business bankers. Still more have recently committed billions to small and medium businesses.
The time is right to work with your bank. Just ask.