How to keep your banker on your side
Every bank started to look like another, and for business owners the choice often came down to terms and credit limit.
As we’ve learned of the banking industry in the past year, however, no two banks are alike. Some banks have negative equity.
Some have stopped lending. Some have new ownership. Because of these issues, consumers are second-guessing their choice of bank – its safety and ability to meet their needs.
Business owners are worried about gaining and keeping access to loans and lines of credit to maintain operations and pay off debt. But there are also banks that have sustained the relationship aspect of banking. Those bankers know that money and banking should be a very personal experience.
They worked their lending relationships carefully and learned about a business before extending credit. They avoided many of the circumstances that put other banks in jeopardy. Today, these bankers are still willing and able to work with business owners in the toughest of circumstances.
Whether or not you are feeling confident about your current banking situation, there are things you should know about the health of your bank. There are also some responsibilities that you should accept in order to have a stronger business banking relationship.
Signs of health
To gain an awareness of the relative health of your bank, ask your banker about these leading indicators: Level of capitalization. Well-capitalized banks should have a minimum capitalization level of 8 percent. This information is public record and is reported quarterly. When banks fall critically below minimum capitalization levels for a period of time, they are at high risk of being taken over by the FDIC. This is because very low capital levels may not support potential losses in the bank’s loan portfolio. Percentage of nonperforming loans. Most loans are structured to allow a bank to demand payment in full at any time. But the weaker the bank, the more likely that underperforming loans could be flagged for early payment. This information is also public record. Underwriting and decision-making. Ask if you deal directly with the people in the bank for underwriting and final decisions or if decisions are handled by a remote committee. This can affect the timeliness of decisions and your level of influence to reach mutually agreeable terms.
Hard numbers, please
In many ways, 2009 was the most volatile and most rewarding of my career in banking. The adage that you never know what you’re made of until you are tested was clearly proven correct last year. The characteristics of fortitude, perseverance and compassion have been visible in the banking arena, though seldom reported in the press. However, banks are still a business. If I am lending money to a customer, I want to see their skin in the game: money down and enough equity available if something goes wrong with their business or personal life. My bank should not be vulnerable to their decisions. Access to financing may appear limited, but in reality requires more proof on the business owner’s side that financing is merited. Terms are tighter, but in reality are reflecting protection for the borrower as much as for the bank. When you talk to your banker to discuss new financing, a change in terms or other banking issues, make sure that you have a solid plan as well as the data to back it up. Meet with your certified public accountant, or CPA, prior to a bank meeting to get clear on opportunities and challenges. Hard numbers will demonstrate that you’ve done your homework and understand the risk as well as the rewards.
Face it and fix it
One of the most important signs of a healthy banking relationship is the feeling that you can talk to your banker about your business situation. More importantly, is your banker coming to you to discuss your financial situation and head off the small problems before they become huge? Is your banker tackling the huge problems with the goal of helping you succeed? Is your banker willing to work with your other banking and financial relationships, including your CPA and wealth management adviser? I can imagine that many business owners right now fear a call from their bank. Even if their bills are paid, they aren’t sure of how to address questions about financial projections or meeting covenants. But if there is an elephant in the room, you can bet that everyone sees it. You might as well be straight and look to your banker to help you find solutions. Smart bankers don’t want to see you fail.
Talk often
Communicate at least monthly with your banker to stay in touch with what is happening at your bank. One reason is the continuing volatility in the industry. More banks may change hands this year, and it does affect bank customers. Almost always, a bank is pre-sold to another financial institution prior to closing. Closings are typically done on a Friday so that the new owners have two days to organize a re-opening by the following Monday. Although the new owners try to minimize disruption to customers, any transition could affect timely direct payments and deposits and other online and automatic banking services. The new bank owner will also review the loan portfolio and may demand full payment on loans that exhibit red flags such as late payments. Another reason to communicate regularly is to develop your banker as a knowledgeable adviser to your business. While your CPA tends to look at the history of your business, your banker is more future focused. This is the adviser who can help you get a clearer gauge of where you are going and how to support that journey financially. Banks should not be viewed as a commodity. Take time to find a banker who is proactive, willing to work with your unique situation and help you look ahead. Then keep that banker on your side.
