More than transactions Featured

8:00pm EDT March 26, 2007
While the axiom “Never a borrower or a lender be” may have been taken as sound advice at one time, credit took on a completely different meaning as countries and economies industrialized. Businesses and bankers have long actively courted one another to establish and provide credit, which provides the grease that lubricates the engine of commercial expansion.

For middle-market companies, understanding how to present the best face to a banker is often a lesson learned through experience. Helping applicants to negotiate the process, bankers are eager to educate prospective clients on the mechanics of completing a solid loan application.

Everett Orrick, senior vice president and regional manager of San Diego and Orange County at Comerica Bank, notes that his job is to develop a solid relationship with clients in order to understand their businesses inside and out and to continue to lend to them over the long term. But what elements must a business consider when selecting with whom it will form a long-term banking relationship?

To get to the heart of the matter, Smart Business spoke with Orrick about forging a successful relationship.

How does the mindset differ between a banker and a prospective borrower?

A borrower obviously is most concerned with whether credit is available, and then secondly whether that credit is priced competitively. A banker wants to make sure that his terms are favorable to a client, but he first must be satisfied that the business he is lending to is sound.

Among the factors we consider include history of cash flow, ability to repay debt, the quality of assets securing the credit, accounts receivable, ownership of inventory and equipment, real estate holdings and, in some cases, intellectual property such as a trademark or patent.

We consider all these factors when deciding to approve a loan. And the way we do that is to get to know a business inside and out because our aim is to lend to an enterprise on an ongoing basis.

Why is relationship-building so important to a bank?

A bank that views itself as a transaction bank looks to do one deal at a time with many different customers. In effect, the lender operates a constant revolving door with customers, most of whom may never come back for banking services.

But once you become the bank of choice for a client, the number of opportunities to perform a myriad of business transactions for that customer increases. The bank now can offer value-added services because it has done its homework to gain an intimate knowledge of a customer’s business.

It can be a huge advantage to mid-sized businesses if all their banking needs are consolidated in one place. Among other things, if a bank understands the full range of a business owner’s financial needs, it can structure the best credit package. And loan approvals also can be performed faster.

How can such a lasting relationship be established?

It starts with the banker. He must know everyone at his customer’s business and understand how each element of the business functions. And the customer must be allowed the opportunity to meet as many people at the bank as he wishes.

Through delving into a business, a banker gains an intimate knowledge of its needs as well as a business owner’s personal needs. Herein lies the key difference between a transaction bank and one that sees itself as a relationship bank. The view benefits both the banker and the customer. Because the lender has become thoroughly familiar with the firm’s ins and outs, he can provide business advice and structure loans at more advantageous terms than would be possible if the business were to use a different bank for each of its needs.

Should customers worry about putting all their banking eggs into one basket?

Not necessarily. In fact, it can be a huge advantage. There are a host of intangible services associated with doing business with one bank. For example, there is continuity and consistency of credit responsiveness. Banks with large commercial lending concentrations depend on maintaining these customer relationships as their primary source of income.

Some business customers believe that spreading their lending requirements to several banks will reduce their risk of not being able to access credit in the future. Not so. The more a bank knows about your business, the more easily it can deliver a loan approval and the more efficiently it can price the right credit facility for you.

A customer’s purchasing power grows incredibly and he is able to borrow much less expensively and at better terms for everything from real estate acquisitions to working capital and for his personal needs. The benefit gain can be anywhere from 1/4 percent to 1 percent less on average for each loan. By this point, a relationship-centered bank understands the breadth of a customer’s business. It knows intimately its cash flow and the nature of its assets. It is here that the bank can make a difference by providing a better rate pledge.

EVERETT ORRICK is senior vice president and regional manager for Comerica Bank’s San Diego and Orange County offices. Reach him at (714) 435-3998 or at eorick@comerica.com.