Banking in uncertain times Featured

7:00pm EDT January 26, 2009

Selecting a new bank is a task that should not be taken lightly. It is key, says Mike Silva, senior vice president and group manager of Comerica Bank, to search for a bank that will pay attention to your company’s individual needs.

“For midsized businesses, there are no cookie-cutter deals; there are nuances to every midsized business owner’s financing needs. Selecting a bank that provides flexibility and customization for these needs is extremely important,” he adds.

Smart Business spoke with Silva about selecting a bank in uncertain times, the importance of having a backup plan in place and the benefits of open communication.

How should a company go about selecting a bank in uncertain times?

Now more than ever, it’s important to do your homework as to the financial where-withal of your bank. It’s hard to pick up a paper and not read about banks with problems, failed banks and banks where the Fed has forced acquisitions. In this environment, it’s important for clients to do their homework about the creditworthiness of their lender.

Why is it so important to look for a bank that has a history of supporting its customers through various business cycles?

We live in a very cyclical world, and there have been a lot of new players, including foreign banks and nonbank lenders, who have entered the commercial bank lending arena in the last five years. Just as easy as it was for them to get in, it is as easy for them to get out of the lending environment. It’s very important to find a lender that has extensive experience in the commercial lending arena and has a deep dependence on revenue and income from that area. Banks that focus on other things — but dabble in commercial lending — find it pretty easy to get out in an economic downturn. Other banks that are dependent on commercial lending for revenue can’t exit because it is such an important part of their business. As a result, they are much more experienced and are better positioned to ride through various economic cycles.

What type of service and performance standards should a business expect from its bank?

You don’t ever want to be your bank’s biggest client or its smallest client. You want to make sure that you are an important enough client that you get good service, but not so large that your bank may be hamstrung in terms of delivering credit or other products and services that you need. Every business owner should have a banker who understands his or her business and who consistently underwrites to the same standards. This ensures that changing credit policies or a changing economic environment do not have a significant impact on the way that you borrow money.

Once a selection has been made, what steps can a business take to maximize the relationship with its bank?

It is very important to be openly communicative and to share both good news and bad news on a timely basis. From a business owner’s standpoint, it is critical to develop annual projections and to manage your business to those projections. When there is a negative variance, talk to your banker earlier rather than later. I have had clients who, in certain instances, don’t want to talk about a problem until they can figure out a solution. Sometimes the problem festers or grows and, in some cases, there is no timely answer. We find that it would be much more helpful for us to be supportive of a client in such a situation if we knew what was going on in a timely fashion.

How can a company most effectively transition from one financial institution to another?

Companies should have a backup banking relationship in place. The banking industry is currently experiencing unparalleled turmoil. If you are beholden solely to your bank and it has issues outside of your control, the lending relationship that is so crucial to you could disappear overnight. This can happen even if you are the best customer your bank has ever had. By developing a relationship with a backup financing source — someone who knows you almost as well as your existing bank — you are not starting from scratch if there are issues.

How important a role does communication play in sustaining a positive working relationship?

Communication plays an extremely important role. Businesses should communicate up and down the chain of command with their bank. Clients commonly complain about the turnover among their bankers. Unfortunately, this is often the nature of the beast, so it is important to maintain dialogue and be known not only by your banker but also by his or her boss, in case you need something special or you need someone to champion an exception in the organization for you.

MIKE SILVA is senior vice president and group manager of Comerica Bank. Reach him at (415) 477-3274 or