While the axiom “Never a borrower
or a lender be” may have been
taken as sound advice at one time, credit took on a completely different meaning as countries and economies industrialized. Businesses and bankers have long
actively courted one another to establish
and provide credit, which provides the
grease that lubricates the engine of commercial expansion.
For middle-market companies, understanding how to present the best face to a
banker is often a lesson learned through
experience. Helping applicants to negotiate the process, bankers are eager to educate prospective clients on the mechanics
of completing a solid loan application.
Everett Orrick, senior vice president and
regional manager of San Diego and Orange
County at Comerica Bank, notes that his
job is to develop a solid relationship with
clients in order to understand their businesses inside and out and to continue to
lend to them over the long term. But what
elements must a business consider when
selecting with whom it will form a long-term banking relationship?
To get to the heart of the matter, Smart
Business spoke with Orrick about forging
a successful relationship.
How does the mindset differ between a
banker and a prospective borrower?
A borrower obviously is most concerned
with whether credit is available, and then
secondly whether that credit is priced competitively. A banker wants to make sure
that his terms are favorable to a client, but
he first must be satisfied that the business
he is lending to is sound.
Among the factors we consider include
history of cash flow, ability to repay debt,
the quality of assets securing the credit,
accounts receivable, ownership of inventory and equipment, real estate holdings and,
in some cases, intellectual property such as
a trademark or patent.
We consider all these factors when deciding to approve a loan. And the way we do
that is to get to know a business inside and
out because our aim is to lend to an enterprise on an ongoing basis.
Why is relationship-building so important to
a bank?
A bank that views itself as a transaction
bank looks to do one deal at a time with
many different customers. In effect, the
lender operates a constant revolving door
with customers, most of whom may never
come back for banking services.
But once you become the bank of choice
for a client, the number of opportunities to
perform a myriad of business transactions
for that customer increases. The bank now
can offer value-added services because it
has done its homework to gain an intimate
knowledge of a customer’s business.
It can be a huge advantage to mid-sized
businesses if all their banking needs are
consolidated in one place. Among other
things, if a bank understands the full range
of a business owner’s financial needs, it can
structure the best credit package. And loan
approvals also can be performed faster.
How can such a lasting relationship be established?
It starts with the banker. He must know
everyone at his customer’s business and
understand how each element of the business functions. And the customer must be allowed the opportunity to meet as many
people at the bank as he wishes.
Through delving into a business, a banker
gains an intimate knowledge of its needs as
well as a business owner’s personal needs.
Herein lies the key difference between a
transaction bank and one that sees itself as
a relationship bank. The view benefits both
the banker and the customer. Because the
lender has become thoroughly familiar
with the firm’s ins and outs, he can provide
business advice and structure loans at
more advantageous terms than would be
possible if the business were to use a different bank for each of its needs.
Should customers worry about putting all
their banking eggs into one basket?
Not necessarily. In fact, it can be a huge
advantage. There are a host of intangible
services associated with doing business
with one bank. For example, there is continuity and consistency of credit responsiveness. Banks with large commercial lending
concentrations depend on maintaining
these customer relationships as their primary source of income.
Some business customers believe that
spreading their lending requirements to
several banks will reduce their risk of not
being able to access credit in the future.
Not so. The more a bank knows about your
business, the more easily it can deliver a
loan approval and the more efficiently it
can price the right credit facility for you.
A customer’s purchasing power grows
incredibly and he is able to borrow much
less expensively and at better terms for
everything from real estate acquisitions to
working capital and for his personal needs.
The benefit gain can be anywhere from 1/4
percent to 1 percent less on average for
each loan. By this point, a relationship-centered bank understands the breadth of a
customer’s business. It knows intimately its
cash flow and the nature of its assets. It is
here that the bank can make a difference by
providing a better rate pledge.
EVERETT ORRICK is senior vice president and regional manager for Comerica Bank’s San Diego and Orange County offices.
Reach him at (714) 435-3998 or at [email protected].