“Relationship” might be the most overused word in banking these days, but it sums up the difference between providing a commodity and truly serving a customer’s needs.
“It really is about having a relationship with someone who comes to know and trust you,” says Jeffrey M. Whalen, senior vice president in the Specialty Markets division at Bridge Bank. “What we do in this industry is serve the needs of clients.”
Smart Business spoke with Whalen about how banks stay involved with clients and build mutually beneficial relationships.
Where should price fit into the decision when choosing a bank?
Most business owners say that, when it comes to choosing a bank, developing a long-term relationship in which owners feel empowered to achieve their goals is their highest priority.
Sole proprietors, closely held corporations and family owned businesses in particular want to get to know their banker, and they want their banker to know them and the ups and downs of their industry. They still want a competitive price, but more often than not, they are seeking a partner who can add real, tangible value to their business in the form of sector expertise, advisory services, etc.
Certainly there are business owners who do prioritize pricing above other aspects of a banking relationship, but in those instances, the owners shouldn’t be surprised if the relationship with their banker doesn’t yield much in terms of value-added services.
By nature, some businesses are very transactional and may not require value-added services. In those cases, business owners may look to other criteria to evaluate a potential banking relationship, such as how active the bank is in supporting their industry or business ecosystem, or how the bank’s core values align with theirs.
Some also want to deal with independent banks, as opposed to larger national banks, because they often have direct access to decision-makers. At a large bank, your account might be managed from a region far from your own, and local representatives can’t help you if there is a problem. For example, if you want to increase a line of credit or need help optimizing cash flows, a regional or independent bank may be able to respond faster because of its locale and relationship with you.
How can banking relationships provide additional benefits to the customer?
Relationship benefits depend in large part on what kind of bank you have chosen to partner with. Banks with a broad range of capabilities can, for example, accommodate an equally broad range of needs a business owner might have as his or her company moves throughout the business cycle. And banks with broad sector knowledge can bring a unique and valuable perspective to the table when helping a business owner evaluate options for growth and expansion, for example. Also, a bank should be able to bring forward a network of professional service providers who can help the owner with other issues that inevitably arise, such as how to establish an employee stock option plan, tax audit and preparation, etc.
So, the right relationship can yield a multitude of additional benefits, and it is important that these conversations are held prior to committing to a bank.
How frequently should bank personnel and clients meet?
It should be every month for larger, more complex client relationships and at least every quarter for smaller ones. Those guidelines, however, are general. Every business should be viewed as unique — because it is.
Therefore, the frequency of interactions with a banker should be driven by the needs of the client, and the dynamics of its business. It’s important for clients to know that a bank should have their best interests at heart and is there to solve problems. Sometimes a client might have problems it isn’t even aware of, but if its banker has the right experience and perspective, and if the communication in the relationship is frequent, the banker should be able to catch these problems before they impact the client’s business.
Communication in the relationship, combined with expertise on the side of the banker, is the key to getting the most in terms of value for the business owner. It really becomes a strong partnership if that can be achieved.
Jeffrey M. Whalen is a senior vice president, Specialty Markets, at Bridge Bank. Reach him at (408) 556-8614 or firstname.lastname@example.org.
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Too often, business owners view their bank as simply a bank. But when they partner with their bankers and treat them as part of the company’s management team, they can receive valuable guidance to help their businesses grow and succeed, says Earl Martin, business banking sales executive at First Commonwealth Bank.
“By planning and having open communication with your banker, putting objectives in place and measuring success with benchmarks, business owners can heighten the stability of their operations and continuity of employment,” says Martin.
Open communication will set the stage for a rapport that’s mutually beneficial: Businesses gain financial support to help grow their operations and bankers can stand with businesses with confidence, using their vast market insight to help owners navigate through the muddiest of waters.
Smart Business spoke with Martin about how to assess and enhance your current banking relationship to get the most out of it.
How does a true banking partner work with a business?
To get the most out of your banking relationship, rethink how you communicate with your banker and consider this adviser as part of your management team. By doing so, your banker can offer you deeper insight and provide the tools necessary to reach your short- and long-term goals.
Your banker should understand your objectives, because these greatly impact how a business is financed. He or she should also have access to regular financial reports, which are essentially a numerical interpretation of past management decisions. Because banks review and interpret those financial statements when making lending decisions, they need that deeper relationship with you to understand the engine that’s driving the performance. In other words, they need to understand your story.
So the closer you can bring a banker into your operation, the better. Include the banker in quarterly meetings with other advisers, invite him or her into your offices regularly and have frequent discussions addressing performance to goals. Don’t lose touch with this critical player on your team.
How can businesses position long- and short-term objectives with a banker?
If all a banker sees is the numbers, there’s little insight into the ‘why’ and ‘how’ that are important for structuring the best financing scenario for a business. The more a banker understands the direction and objectives of a company, the more that person can assist in positioning the business for the future.
With a deeper understanding, the banker can analyze the balance sheet and consider how goals and objectives will affect current and future cash flows and how the direction of the company will affect future operational investments. Also look at how any financing arrangements fit into the bigger picture of your long-term aspirations.
When the banker knows exactly how a business is managed through its respective unique cycles, it helps that person position the company moving forward. For example, a business that wants to grow 10 percent could have self-sustaining growth based on reasonable gross profit margins.
However, a company that desires a 40 percent growth objective will have different leverage requirements, experience different cash flows and administrative challenges and, as a result, will require different financing arrangements.
Ultimately, a banker must understand where your business is today and where you desire it to be in the future. That way, he or she can provide guidance and appropriate financing opportunities that align with your objectives.
How can a business enhance communication with the bank?
The business and its banker should meet on a regular basis. Certainly share the good news, but don’t be afraid to share the bad, as well. Don’t wait for a quarterly or biannual meeting with your banker to discuss financial performances that aren’t meeting projections. And recognize that a banker has the resources to help grow your company in ways other than providing leveraged capital. For example, a banker can get you on track with succession planning or assist in reducing intrinsic risk, minimizing administrative expenses associated with banking and retaining employees.
Ideally, you should include your banker in regular meetings with other trusted advisers, such as an accountant and an attorney. Each of these professionals comes to the table with a different perspective on key business decisions. If your goal is to maximize personal wealth — and that’s the goal of most business owners — an accountant will consider the tax implications of your decisions.
However, the minimization of taxes can be in conflict with what a bank looks at when analyzing the solidity of cash flow and the impact on a balance sheet. So it is critical that the accountant and banker, especially, understand your goals and objectives so the best financial strategies can be implemented in the most appropriate manner.
What key benchmarks should a business review while working toward its objectives?
Many businesses look at revenue growth as a measure of success. But one should look more closely at gross profit margins and the business’s ability to control expenses as a percentage of revenue. Also important are a company’s liquidity, capitalization and cash flow. These benchmarks will vary depending on the industry in which a company operates, the company’s history, current economic situation, as well as where an owner wants to position the business moving forward. That is why having these discussions with a banker is so critical. Go deeper than numbers when working with your banker. Let him or her see the real picture of your business, where you are today and where you want to be tomorrow. This insight will go a long way toward positioning your business for the financial backing needed to meet your goals.
Earl Martin is business banking sales executive at First Commonwealth Bank. Reach him at (724) 926-1332 or EMartin@fcbanking.com.
Surviving an economic downturn often hinges on a business owner’s ability to secure a commercial loan modification or expanded line of credit, but your chances of success dramatically diminish when you present your case to a veritable stranger. History shows that a banker is more likely to decline your request if he’s unfamiliar with the fundamentals or seasonality of your business or is unsure of your management capabilities.
Instead of waiting to share vital information and build trust with their banking partner, savvy executives act proactively so they can rely on established relationships to weather an economic storm.
“Open communication builds trust, which is valuable in good times and bad,” says Peter Koh, senior vice president and deputy chief credit officer for Wilshire State Bank. “Because trust is the foundation for all banking decisions.”
Smart Business spoke with Koh about the benefits of building a mutually beneficial relationship with your bank.
What characterizes a productive banking relationship?
A good relationship is characterized by an open dialogue and frequent communications, so a banker becomes familiar with your business model and needs. For example, unless you offer a detailed explanation, a banker may decline your loan application if he doesn’t understand that a seasonal downturn is impacting your financials. And unless you take the time to provide adequate documentation and a narrative to support your sales forecast, a banker may conclude that your growth assumptions are a bit too optimistic. Conveying the nuances of your industry and its cycles also helps your banker suggest appropriate services and solutions based upon his experience in the broader market. Remember, bankers have interdependent relationships with their clients, so both parties have a vested interest in mutual success.
How does a banking relationship benefit business owners and executives?
A banker is more inclined to entertain your request for a new loan or modification if he has a deeper understanding of your business fundamentals. And if the business owner has historically met his or her financial obligations and documentation requirements on a timely basis, a banker will be inclined to act quickly on any request. Essentially every banking decision is based on a combination of facts and intangible factors, and a solid working relationship can sway a close decision. It may be natural to avoid contact with your banker when times are tough, but you should view adversity as a call to action. Proactively explain your situation and offer an action plan or an alternate view of your company’s performance so both parties can focus on solutions instead of problems.
What criteria should a business owner consider to identify a suitable banking partner?
Certainly service levels and a bank’s offerings are important, but the decision really comes down to your comfort level with the staff and the banker’s knowledge of your industry and the local marketplace. Historically, community banks have catered to local businesses because their smaller size provides business owners and executives with greater access to loan officers all the way up to the CEO. Plus, your loan application doesn’t necessarily have to be approved by an executive in another city who doesn’t understand the nuances of the local marketplace. And smaller banks tend to be more flexible and less regimented than their larger competitors, so they’re willing to tailor a package of products and services around your specific needs. Evaluate your current banking relationship and upcoming needs so you can create a wish list to help you evaluate several contenders, but don’t overlook the intangibles that create a mutually beneficial relationship.
What are the keys to building a productive working relationship?
Follow these best practices to build a productive working relationship with your banker.
- Be transparent. Turn your loan officer into your secret advocate by supplying copious data as well as industry reports and trade group information, so he has the knowledge and confidence to lobby bank executives on your behalf when you submit a loan application or request for a modification.
- Be open. Invite your banker to visit your company, see the property or attend industry trade shows, so they have first hand knowledge of your operation and critical business fundamentals.
- Be resourceful. Turn to your banker when you need ideas to grow your business or overcome adversity, because this person meets with owners and deals with these problems every day. In fact, your banker is an excellent source for vendors or other experts who can help you write a business plan or even streamline operations.
- Be prepared. Anticipate your banker’s requests and come to meetings with a well-thought-out plan that specifically addresses his or her critical questions. Your banker wants to know how you intend to increase rents by 20 percent when the market is falling or how you plan to acquire new tenants when local occupancy rates have been trending down, so anticipate and be prepared to answer how-to questions.
- Be consistent. Provide your banker with quarterly updates that compare your company’s performance to your business plan, an updated forecast and feedback on the bank’s products and services.
- Be honest and proactive. Approach your banker before a problem occurs, because it’s much easier to boost revenue and profits than to rebuild a broken relationship or lost trust.
Peter Koh is a senior vice president and deputy chief credit officer for Wilshire State Bank. Reach him at email@example.com.