Maintaining a Successful Banking Relationship
Your bank constantly evaluates you and/or your business. They examine your financial statements, of course, but they also notice other subtle things, such as your current financial state of health and general well being.
Remember, the nature of the banking business is to evaluate risk. As a business owner, your bank needs to know that all is financially well in your personal and business life. If you provide them with information or signals that suggest you are having financial difficulty -- and you do nothing to make them think otherwise -- you might as well have asked them to turn down your next loan request, raise your interest rate, or call your loan.
Appearances Matter
Obviously, your bank wants to continue a positive relationship, and they look to you to provide assurance for doing so. The fact is that while you or your business may be prospering, you may be sending them information that says just the opposite. The following are some signals that may attract attention:
Making the Daily Review Lists. Most bankers review daily lists of checks drawn on uncollected funds, overdraft accounts, and large transactions. If your account regularly appears on one of these lists, they may wonder if you are out of cash or otherwise headed for trouble.
They also review daily lists of past-due loans, loans with incomplete collateral documentation, and late financial statements. You may not consider late statements significant, but bankers do. They’ve learned that people are seldom late when they have good news to tell. If you are slow to pay, they may assume the worst.
Experiencing Cash Flow Problems.
When you frequently request small loans to cover incidental expenses, banks may begin to assume that your personal or business situation isn’t generating enough cash. Or, if you maintain high balances on your bank credit cards, a banker has the right to wonder why you’re willing to pay 18% for money rather than pay off the balances. When your financial statement shows a large net worth and a small amount of cash, they may worry that your debt service is exceeding your cash flow.
Changing Your Proposal. When you change your mind too often in your dealings with a bank, you may leave the impression that you are out of control. One fairly common situation that bankers encounter is a customer coming to the bank with a request for a specific loan amount. The banker gets it approved, and the customer then says he or she really needs more money! It may be embarrassing for the loan officer to take a "whoops" proposal back to the loan committee.
Looking Rough around the Edges. When bankers evaluate the risk of a loan, they take a long, hard look at the borrower’s current condition. In loan committee meetings, it is important to make certain you are sending the proper message. If loan officers notice a drastic change in your appearance or behavior, they may justifiably wonder what is wrong.
In addition, if the physical condition of your company begins to look run-down, with peeling paint or disheveled landscaping, chances are someone from the bank will notice. It may look to the bank as if you are either not paying attention to the details of running your business or that you don’t have the money for basic maintenance.
Reflect, Then Act
If any of these descriptions sound uncomfortably familiar, consider developing a strategy for implementing changes now. Maintaining a good relationship with your bank is crucial to executing your business’s financial plan. Whenever possible, eliminate problems that could be roadblocks on your path to success.
