In this difficult economic environment, having a good relationship with your bank and banker is critical to the success of your business.
A strong relationship with your bank will not only give you access to capital, but also help you obtain better credit structure and pricing. One of the main causes of the breakdown in the relationship between the banker and entrepreneur is communication.
If your banker is not listening or willing to take the time to understand, it’s an easy problem to solve – find a new bank.
However, a successful relationship is a two-way street. Both parties need to take responsibility. Here are five key points every entrepreneur needs to understand to help build a mutually beneficial relationship with his or her banker and bank.
To build a strong entrepreneur-banker relationship, ask
1. Am I with the correct bank?
Many business people say they like their bank. Or they say they have a great relationship with their banker. Maybe your banker is quick to respond and help you. Maybe you have things in common and it’s easy to talk to him or her. Those are all good signs of a strong relationship. But it’s just the start.
Personal feelings aside, is it the right bank for your business?
As a business owner, you need to understand the bank's core focus. In today's tough economic environment, it is extremely important to know a few things about your bank:
- Is your bank looking to grow?
- Does your bank understand privately held businesses?
- Does your bank understand your industry?
- In addition to your day-to-day contact, do you have a relationship with the key decision makers?
- Do have access to the CEO, Regional President or the key decision maker on your loan?
In order to ensure your company has access to ample capital, know the answers to these questions to make sure you are with the right bank and banker.
2. Do I understand my own financial statements?
As a banker, there is nothing more frustrating than asking an entrepreneur questions about his or her financial statements and the response is a shoulder shrug and a blank stare. It is critical to be able to present your financial statements and be able to understand basic financial concepts.
A good banker or your CPA can coach you on your financial statements and be partners in your success. This knowledge is important not only for your banking relationship but also for building a foundation to grow and maintain your business.
3. Do I understand the ratios my bank is reviewing on a regular basis?
Every bank has certain financial performance ratios that will be used to underwrite the credit worthiness of your business, including:
- Current ratio
- Quick ratio
- Debt coverage ratio
- Debt to tangible net worth
- A/Rs payable
- Inventory turns
Work with your banker to understand these performance indicators. Then take the time and effort required to improve your financial statements and your credit worthiness. There may be a couple of easy adjustments you can make to improve these ratios which will improve your creditworthiness at the bank. The better you understand your financial statements and key ratio analysis, the better your relationship will be with the bank. In addition, chances are you’ll see stronger profitability.
Communication is the key to any good relationship you have with your employees, spouse, family and customers. The same is true with your banker. Like all strong relationships, it takes work.
4. How often do I talk to my banker?
While it is easy to communicate good news, it is extremely critical to share bad news with the bank as soon as possible. The bank will want to know the problem and understand the plan to correct the problem.
Many entrepreneurs are scared to share bad news with their bank because of the ramifications of losing access to capital. Well, if you are with the right bank and have a good relationship with your banker, the bad news will be taken in stride.
Every business experiences bad news and a good banking relationship will be able to withstand negative news. The important thing to remember is that your banker and bank should be your partner.
Share information that affects your business early and often. Then together you can figure out the best solutions.
5. Do I provide my banker information on a timely basis?
It can be a pain to provide monthly or quarterly information to your banker. It can be difficult to find the time to gather the information. But it will benefit your business if you respond quickly to the request.
A good banker is using that information to help him or her be a stronger partner in your business.
That information is also critical for you to obtain access to the necessary capital your business needs. Think about one of your customers who is 60 days past due on paying an invoice. How do you react when they will not return your phone call?
Your banker thinks the same thing as you do if he or she does not hear from you or receive information on a timely basis. It frustrates the banker and delays any necessary actions he or she needs to take on your behalf.
Strong relationships require respect, which includes responding quickly to requests. Making it a habit to provide necessary information to your bank in a timely manner will allow them to help you sooner.
One Shared Goal: Your Business' Success
If you follow these five key points you will not only have a good relationship with your bank and banker, you will also have a bank that is a true partner in your business.
Please keep in mind, a strong relationship with your bank will mean greater access to capital at more favorable terms, allowing your business to grow.
Enterprise Bank & Trust does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisers before engaging in any transaction.