 
By Brian D. Evans
As a business owner, one of the most important relationships you will form outside your key management team is with your banking institution. For this relationship to be truly beneficial, however, you should first understand who your bank is, its mission and its strengths. Does it have a strong commercial lending history? How long has it been around? Does it experience a lot of employee or management turnover? Does it have local decision making for credit decisions?
Another important point to remember is banks are for-profit entities, and to earn that profit, they loan money (i.e., invest in assets) for a return to shareholders. That does not make them the enemy, just businesses operating much like you do. Banks are a principal component of the business model and have tremendous potential to become strategic business allies if you properly nurture the relationship.
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| A good relationship with the bank needs to form before you have a need. |
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The three Cs
Banks operate on a simple core platform when evaluating their business relationships. This core platform is known as the three Cs of lending, which are the primary criteria used to evaluate every relationship:
- Character: Who you are as an individual and as a company has a tremendous impact on your relationship with the bank. Your integrity, honesty, lifestyle, business acumen, community involvement and industry sector are important factors. The bank derives this information through personal interaction, community contacts, other business owners and your credit report.
- Cash flow: Cash flow is the key consideration in debt repayment. Your company’s ability to generate and grow consistent cash flow allows the bank to make loans with the confidence that it will be repaid as agreed.
- Collateral: Creditors will also review the assets held by your company and related entities to secure debt obligations as a source of last resort, should you default on the loan. It’s important to understand that no banking institution ever wants to take possession of collateral; they are not in the business of buying and selling assets or property to repay outstanding loans.
We all know the importance of a good relationship in business and that is no different when dealing with your bank: Establish that relationship with the bank before you have a need. When it comes time for that new expansion, working capital, real estate or acquisition, your chances for loan approval increase greatly if you already have a good rapport with the bank. Here are some helpful tips on how to boost your business relationship.
| Before asking a bank for a loan, a business owner should be prepared to address the following questions: |
- Why is your company borrowing money?
- Do you, as the owner, understand the impact of additional borrowing on the company?
- What will be the principal source of repayment for the loan?
- What is the secondary source of repayment for the loan?
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Pick the right bank: Choose a bank that you can rely on for the long haul. A bank should possess qualities that reflect stability, good management and a sense of civic responsibility. It is also important you choose a bank that suits your needs and reflects your personal traits and characteristics.
Know the bank’s entire management team: The easy way out is to simply work with your main point of contact. Although this relationship is of great importance, it may also be very costly in the long run. You must get to know the entire relationship team, which may include your banker, his manager and the key credit manager. Loans are never approved by one person, and if the decision-making team is familiar with you and your company, you will generally have a more favorable outcome.
Involve the bank in your company's affairs: An easy and effective way to build and maintain a relationship with your bank is to keep bank officials up-to-date and involved with your company and its activities. This may include giving periodic business updates, inviting bank management to an important company seminar, or even making a phone call to relay the company’s current activities and financial successes. Keeping the bank in the loop increases your chance of benefiting from a long-term collaborative experience. Remember, banks despise surprises in business as much as you do. If you treat them as part of the team, they will react as part of the team.
If you need additional guidance, financial executives such as CFOs or controllers can help your company develop and maintain a stable, working relationship with a bank. These seasoned professionals have networks of relationships with banks and bank employees, and because they have already established themselves and their qualifications, they can help you get straight to business.
Forming and maintaining a successful relationship with a bank should be a top priority for every business owner. In addition to being a valued business partner, banks possess many resources beyond traditional banking products and can be a single point of contact within a large network of industries and professionals. In the long run, you will be amazed at the value you can derive from a long-term and successful bank relationship.
Brian D. Evans is the Tampa regional director for CFO Strategic Partners, which provides chief financial officer services for companies in Orlando, Tampa and Atlanta. He may be reached at 813-363-5280 or by email at bevans@cfosp.com.
© 2005 Brian D. Evans. All rights reserved. Used with permission.
July 2005
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