Thursday, October 23, 2014

Eight Ways to Improve your Relationship with your Banker

We recently attended our State SBDC network training and received professional development training on a number of items to help our clients such as crowdfunding, web tools and succession planning. One session by my colleague, Linda Johnson, out of the Yakima center addressed tips for small business owners to maintain a good relationship with his or her banker.

If you will be seeking a loan, line of credit or negotiating terms with your banker, here are eight ways to improve or maintain a good relationship with your business banker.

What's the bottom line?

1.  Understand your financials.

This may sound simple, but is a fundamental factor in managing or owning a business.  If you do not understand your balance sheet, profit & loss statement and cash flow, it is time to learn.  Set aside time with your business advisor to go through your statements or schedule extra time with your CPA or bookkeeper.

If you have a business loan, you may have an annual review with your banker.  It is imperative that you are able to discuss your financial situation and explain what or why the numbers are a certain way.

2.  Make a profit.

Banks lend against profits and cash flow, not collateral.  Some business owners try to reduce taxable income and as a result, the business does not appear profitable.  This can be a big concern if you need to borrow money or if you plan to sell the business in the future.  A buyer doesn't want to buy a business that is not profitable and likewise a bank wants to make sure it will get its money back.

3.  Prepare a plan.

You hear a lot about the need for business plans, and I firmly believe in the value of preparing a business plan.  In this case, the suggestion is to prepare a business financial plan that addresses the short term goals and needs, contingency plan and a long-term plan.  Having a Plan B or contingency plan can reassure your banker that, in the event of an emergency, you will be able to repay the loan.

4.  Do not shop for a new banker unless you have done 1-3.

It may be tempting to avoid your banker and just start over.  You will be better in the long run if you take the time to work on the business rather than shopping around for a new banker.

5.  Be realistic about banker requests for collateral.

If you are seeking a loan for a start-up business, the banks will likely require some form of collateral in addition to the owner contribution.  I have had clients say that they do not want to put up their house for collateral, but that was the only way the bank would sign off on the loan.

6.  Establish and maintain trust with your banker.

Communication opportunities can help establish trust, discuss expectations and voice concerns.  If you are going to be late on a payment, be up front with your banker and keep him in the loop. Building trust (and credit) takes time and sharing good and bad news allows for open discussion and the opportunity to work together on solutions.  Be mindful of sharing too much; there is a difference between sharing relevant information and oversharing.

7.  Consolidate banking relationships.

You may be able to negotiate a better deal by consolidating banking services.  Ask around, get information on what your bank can offer. Banks want its customers to be profitable - it is a win-win!

8.  Keep a banker in reserve.

While not actively shopping for a new banker, it is not a bad idea to foster existing banking connections. She could be in your service club, an acquaintance or someone that you have worked with in the past.  Banks have been bought and sold, personnel change and if you are looking for a new relationship it might help to have some options.

Maintaining positive business banking relationships can benefit your business.  I have had a client get a loan for a new building by calling the banker and not having to jump through a lot of hoops, simply due to the longstanding association.  Your banker is a key part of your team and it is a good business practice to establish and keep positive connections.