When we think of a bank, some business owners think of it as a necessary evil. That sentiment is likely due to the feeling that the bank uses the funds it has on deposit to make more money loaning it to others, that they are stingy on lending money back to business owners, and charge fees for virtually every transaction they make.
While there may be an element of truth to some of those concerns, remember that banks are a business and also need to make money to stay in business. What business owners often overlook are the positive outcomes of having a good business relationship with a banker.
First on the list is reduced risk. Imagine a business where all the cash and payments are kept on site in a vault. Any guarantee against loss or theft is gone. Although it may seem like a viable way to conduct business and keep your cash close by, the scenario also means your business, by definition, relies on being conducted only through cash transactions. That also limits how your customers can pay for your goods or services.
Banks provide a means to process checks and credit card payments, although credit cards can be processed apart from a bank through a company such as Electronic Payments. These options for customers enable your business to accept more than cash. Even businesses (a few restaurants come to mind) that accept only cash have automated teller machines (ATMs) in the lobby or close by where customers can get the cash they need by swiping a debit or credit card.
The most important reason to have a banker or an investor as part of your non-staff management team, however, is to help you manage your business. A strong, professional relationship with a business-oriented banker enables you to control cash flow, keep abreast of banking regulations, and manage your financial assets.
Too often, business owners only approach or talk to their banker when they need money. People I know in the banking industry hate that as much as the business owner. Bankers want to help you but need to know how. If it’s merely depositing your revenue into a checking account and using that account to pay your invoices, just talk to your banker about the best options for that type of account.
To get more value from your relationship, however, you need to get your banker involved in your business. Obviously, the first step is to establish parameters regarding confidentiality and other concerns, especially if it involves sharing your financial statements on a regular basis. Next is to give them insight into your business, which can be done with a business plan, a tour of your facility, and perhaps even a spot on the board of directors. Then stay in touch with your banker on a regular basis. Keep them abreast of your situation so they can be prepared to extend a line of credit or help with a short term loan if finances are getting tight or cash flow becomes an issue.
Talk long-term strategies with your banker as well. Let them know what you have planned, when you anticipate any expansion efforts to take place, and besides what you expect the costs to be, when you plan on being able to pay off the capital improvement loan. The old saying that if you work with them, they’ll work with you is valid when it comes to your banker.
Keep in mind that since the economic crisis around 2007-2008, banks have come under much closer scrutiny from the federal government and all the regulatory agencies. That implies that banks are now required to be more careful in what loans they add to their portfolios, which may mean you need personal guarantees or stronger collateral to get the same kind of loan you used to get before that time … and they may turn you down.
The questions you need to ask your banker should cover interest rates, penalties, loan procedures and requirements, and how best to manage your relationship with them. Getting free business checks is less important than avoiding monthly account service fees, although both may be negotiable.
Your relationship is still what’s most important. You want a relationship with a banker who’s responsive and honest. You shouldn’t have to wait four weeks for an answer about a loan, and you want them to tell you up front what to expect, even if the loan possibilities look bleak. You want answers and want to know where you stand so you can make informed decisions.
Keep in mind, too, that if you face rejection for a loan from one or more banks, there are other options, such as private equity and angel investors. These may be long shots as well and require a higher rate of return, but they are options for your business to continue to flourish and serve your customers.
