Too often, business owners simply gravitate to the lowest rates and don’t give their banking relationships another thought. But while rates are an important factor — and one that business leaders should address — a rate difference of 25 to 50 basis points can prove much less significant than other factors, says William Cook, senior vice president, Akron, Canton, Firelands Market, Premier Bank.
“When choosing a banking partner, you need to do as much investigating as you would when selecting any strategic partner your business deals with,” says Cook. “Look at both the bank and the banker and see if they are a mesh with your business’s current and future direction. Too often, businesses go right to pricing and fail to do their due diligence, which can cause significant harm.”
Smart Business spoke with Cook about how to identify a banking partner that can help position your business for success and grow with you into the future.
Where should business owners start when looking for a banking partner?
Talk with your peers and other professionals who can help identify potential partners. Look for a bank that will take the time to understand the nuances of your company and stay with you through difficult years.
One size does not fit all. For example, in 2008, many banks that said they partnered with clients changed the rules when companies had one bad year. If a company hits a rough patch and can’t get the financing it needs, that can put it at risk of going out of business. In difficult times, will your bank work with you, turn you over to another group or terminate the relationship? How patient can it be through a downturn? Your bank should be in it for the long haul and provide the capital to support your business model through both up and down cycles.
What else should a bank provide business clients?
Your banker should be knowledgeable and share information about the economy, your peers and how they are handling the current economic cycle. Can they anticipate an economic downturn and find ways to use credit to relieve strains on cash flow? Do they have ideas for restructuring, or reducing inventory to generate cash so you have flexibility in a downturn? The banker should be more than a source of funding, acting as an adviser and sharing ideas.
That is a two-way street. Sharing both the good and the bad with your banker The more information the banker has, the easier it is to defend your company and work through any situation. When bankers are surprised, knee-jerk decisions can limit their ability to work with you.
Even positive information can result in unwelcome surprises. If you are experiencing exponential growth, you may run out of cash. Approaching your banker early allows them to work with you to bridge the gap, support you and support your growth while maintaining risk management requirements for the bank’s shareholders. Giving bankers an early heads-up allows them to structure products and services to meet that need until demand slows, cash flow catches up, or you support new customers.
Why should your banking partner understand the intricacies of your business?
This allows them to acquire information, identify potential customers or suppliers and make introductions, creating invaluable connections. Your partner must be willing to roll up their sleeves and learn, researching your industry and stepping in without burdening your company.
Your banker should gain a deep understanding of the business and anticipate challenges. Businesses have seen margins decline as commodity prices shot up, and the sooner you bring your banker into these conversations, the more confidence they have that you are addressing situations that could result short-term pain and challenges. Now is the time to review your banking relationships. Identify a bank that will work with your company day in and day out, that is involved with its community, where people want to prosper.
Your banker is just as important as your other advisers. With the right relationship, your banking partner can advise you on more effective and better ways to do things beyond financial products. Consider your banker a salesperson for your business and make sure they represent your company to others in a way that benefits them and helps your business grow. ●
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