Opening the vault Featured

8:00pm EDT April 25, 2010

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.

“You really find out what your bank is made of when things get tough,” says Hugh Conners, senior vice president and group manager, Comerica Inc. “We try to work with our borrowers; we try to provide a solution that’s going to work for both the customer and the bank. It might not always be what the customer wants, and it might not always be what the bank wants, but you have to try and find that middle ground because that compromise is very important.”

Ask the right questions

Communication with 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.

“Customers change, the environment changes, the business changes, so the No. 1 thing I tell business owners is to take the time — if not once a quarter, at least twice a year — to go in and sit down with your banker,” says John Sotoodeh, regional president, Wells Fargo & Co. “Let them know your financial situation, let them know your business objectives, let them know what has changed. And, on the flip side, let the banker tell you what has changed with products, with services, with fees, with interest rates. There’s so much that happens in the industry that that communication is critical to our business customer’s success.”

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 believe in relationships,” Conners says. “We are a relationship bank, and as in any relationship, whether it’s with a spouse or a friend or a bank, that consistent communication is important to keep it going. It goes both ways. It’s not just the customer communicating with the bank, it’s the bank communicating with the customer, as well — what our observations and thoughts are, what’s going on in the industry, in general, and in their industry, in particular.

“That means the customer should include the banker in their forward plans. Asking for early involvement is a good way to develop a strong relationship with your bank.”

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.

“The solid financial banks are really somewhat awash in liquidity because there hasn’t been a strong demand and people are holding onto their investments and their spending,” says Rick Davis, Southern California division executive, Bank of the West. “The issue with expansion is really what’s going on with a particular firm or a particular industry where they may be showing red ink or show dropping sales.

“The banks certainly have money to lend. We have done very little in our underwriting changes. We’re certainly more diligent when it comes to real estate today, and we always take a look at the business, the business plan and the business numbers. As the economy continues to pick up steam and more businesses are improving earnings, I don’t think the banks’ willingness to lend will be a problem.”

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.