I can almost see you shaking your head at the headline. Do you have a good relationship with your lawyer and your banker? If you do not, you should. Let’s talk about why. My experience tells me that the most successful business people learn to work well with their lawyers and their bankers. A relationship with a law firm not only will keep you out of trouble, but more importantly, should help a business grow and prosper. Likewise, the importance of a good relationship with a bank.
A good bank will provide a myriad of financial services for a business, including checking, wire transfers, letters of credit, merchant services, and nowadays even investment advice and execution of trades. However, perhaps the most important service for a small business, is the bank’s ability to lend the business money at competitive rates. At some point, when a business grows larger, it will need to find its capital from other sources, including investment bankers, joint venture capital, and ultimately, shareholders. However, for our small business clients, a key to success is almost always the ability to borrow money from banks.
So how do you build a good relationship with a banker? First, be honest. You need to find a banker that you can lay out your needs to honestly. That is not to say, you should not put your best foot forward, collect your financial data, and be willing to speak as an advocate about your company’s good prospects, especially if you have some problems. However, if you cannot tell your banker the truth about your needs and occasional bumps in the road, ultimately, this banker will not be effective for you. This applies to lawyers as well. Any lawyer you cannot tell the truth to, you do not want.
Second, both the bank as an institution and the individual banker are important to you. Banks know this, and know that ultimately, loans are made by people, not institutions. This is one of the reasons when bankers sometimes switch banks, the loans and other banking relationships follow them. Thus, in an ideal world, you want to find an institution that believes in good customer service, provides good competitive rates, is generally supportive of your type of business, and you want to find a banker that meets all of the same criteria, and, if possible, one that you personally like……and likes you. If you are shaking your head saying you do not have that kind of relationship, do not hesitate to give us a call as we know some great bankers who might be just the right person for you to meet with to begin to build the kind of banking relationship you want.
Third, do not ask the banker to believe in your business more than you do. What do I mean by this? Simply, recognize that if you are a small business, you will have to put yourself personally on the line if you want to borrow money from the bank. This means at the very start of a small business you will likely not get a business line of credit. You will simply have to borrow against existing equity, likely, in the form of a home equity loan. Even after your business grows and shows that it can more than meet its financial obligations, bankers will still usually want personal guarantees. While there is a natural tendency on behalf of bankers to always want as much collateral as they can get, and by borrowers and their counsel to try to keep the amount of collateral down, recognize that you must ultimately be fair to the banker and give them enough collateral to feel as confident in you and your loan as you do.
Fourth, consider having more than one banking relationship. Our banking clients will not like to hear me say this, but most successful business people have more than one banking relationship. Thus, if one bank cannot step up when a particular credit facility is needed, perhaps another can. It also does not hurt to create a little bit of competitive pressure when your principal banker also knows you have a relationship with another banker. Although all banks seek to have every one of your loan and depository relationships, my advice is to have a little bit of your banking relationship with another bank at the same time.
This said, recognize that if you want to do substantial borrowing from a bank, you will undoubtedly need to have deposit relationships with the same institution. Banks have the ability to “borrow money” (at, hopefully, a lower rate) that they use to lend to their customers. However, they make the most profit on money that they get from depositors. The very best thing for a bank is money held in a checking account that does not pay interest. This becomes free money for the bank, and allows a substantial margin when they lend that money out. Most businesses do not keep substantial deposits in non-interest bearing accounts. If your business is one of those that do, recognize that you have real value to the banking institution, and do not be afraid to negotiate that into more competitive rates.
Fifth and finally, reward good service with loyalty. Good service comes in many forms. A quick return to your telephone call, attentive and creative review of your needs, a willingness to work through your business plans, and perhaps suggest good ideas for building your business, a quick review of your borrowing requests (both bankers and certainly borrowers know, that borrowers not only want a quick “yes” to a borrowing request, but that there is nothing worse than a slow “no”). If your banker gives you good service, do not be afraid to be loyal, even if the guy down the street offers a little better interest rate on deposits, or will lend to you just a little less expensively. Banking is a business too, and from time-to-time some financial institutions put out “loss leader” products just like your supermarket does. Do not be fooled by this. Do not change an otherwise good banking relationship for a small monetary gain. If the service is good, and the rates consistently competitive, if not the lowest or the highest, be loyal to your banker as he or she has been to you.
Thomas M. Wells is the Senior Partner at WJ&L, and divides his time between our New Jersey and Vermont offices. He practices in the areas of Land Use, Real Estate, and Business & Corporate and also enjoys working with Non-Profits.
