Every relationship between a business and its banker is different.
“Some only call when they need something,” says Tara Silva, a Senior Vice President at Premier Bank. “Others call often and really treat their banker as a trusted advisor. The more information a banker has, the better they are at telling the company’s story and being their biggest advocate internally as their request for a loan or a line of credit goes through the approval process.”
But regardless of the communication cadence, what’s most important is that there is one.
Smart Business spoke with Silva about why businesses should regularly communicate with their banker, regardless of whether the news is good or bad.
Why do banks need to hear from their business clients?
Bank customers — those who have loans or lines of credit — are required to regularly send in their company financials. If those aren’t coming in as expected, and then the company sends in financial records with what would be considered a lot of ‘noise’ in the numbers just ahead of a debt request, it can slow down the approval process. Without the story behind the irregularities in the numbers, the bank might be left with little choice but to give the customer bad news. The more a company communicates with their banker, the easier it is for the bank to find a way to approve their request.
What should be discussed?
Bankers certainly want to know when business decisions are made that may cause a covenant default. Asking for a waiver prior to a default, based on a business decision, is a lot easier than asking for forgiveness after the fact.
Many business decisions are made after having conversations with accountants or attorneys. A banker is also a good voice to have in the room when major business decisions are made, as they can help set the stage for funding options that could be critical to getting a project done. Talks could also be around areas of risk such as fraud, whether that’s in check fraud or wire fraud. The better a bank understands its customer, the quicker it can react to any kind of irregularities in their accounts.
How often should check-ins happen?
At a minimum, bankers would prefer to hear from their business customers quarterly. These conversations are an opportunity to go through financials, looking at growth in the company as well as changes in activities and any headaches that they’re experiencing, whether internally, with vendors, or because of outside economic or marketplace pressures. At its most basic, it’s a chance to understand what the business is experiencing and what it expects from the remainder of the year. That gives the banker the opportunity to better understand their story and, as they approach the review process for the company’s annual line of credit or other banking products, pass along that story through the process so there’s more clarity behind the numbers.
While frequency of communication is important, the more critical aspect is that there is full transparency between the company and the banker. Bad news doesn’t get better with time. The more the two sides communicate, the better it is for the relationship. Bankers want to hear about the challenges the company is facing as well as the steps being taken to address them.
A dip in revenue is not a red flag that signals a change is needed in how the bank looks at the company’s credit — in some cases, it’s the credit facility that’s in place that’s helping the business weather a difficult time. Instead, it makes the bank aware of what’s going on so that they can offer ways to help. Because of a bank’s broad relationships, they might have a customer experiencing a similar problem that employed an effective strategy to deal with the issue. The more the banker knows, the more confidence it has in that company going forward. ●
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