Having the right banker is important. A company needs a banking relationship that is good in the good times, but also strong when markets are challenged.
“A company does not want to have a certain structure for an extended period of time, then have that structure modified without cause when times get tough,” says Dan Culp, Senior Vice President, Commercial Banking Relationship Manager, Premier Bank. “That is not a good relationship.”
Consistency in messaging — across the entire banking proposal process, underwriting and onboarding — is also critical to a good lending relationship.
“Having the access that lets you get to know your direct relationship managers, the support teams and the senior managers of the bank, and hearing the same message from all of them, builds goodwill and allows all sides of the relationship to hold each other accountable.”
Smart Business spoke with Culp about choosing the right bank for a business’s unique lending needs.
In what ways do banks’ lending practices differ?
All banks have their specialties. Usually, a bank’s size will correspond with clients they are servicing. Local and regional banks tend to target and best serve locally owned and managed business. Their lending practices focus on cash flow from operation, collateral and guarantor support. Also, their lending activity and client base are often within the same footprint — for example, an Ohio company would likely not be best served by a California bank.
Large national or even global banks target and best serve larger, multi-national companies, many of which are publicly traded. Cash flow tends to be the key underwriting criteria, with lesser reliance on collateral and guarantees. Covenants or analytic benchmarks that are used to evaluate these companies, and underwrite and mitigate risk, are not likely used at smaller institutions.
Also, certain banks have comfort with specific industries, so asking if a bank has that knowledge can be a good qualifier if that lending specialization is important to a business.
What signals that a business should find a new banker?
Turnover in the banking team, inconsistency in the messaging from the bank, an inability or unwillingness to answer questions that have been historically disclosed, changing of structure without conversations and meaningful explanations, or if the business feels ignored or even pushed out are all signs that it’s time to find another banking partner.
It is unfortunate, but sometimes directives are made from an authority level at the bank that does not know a certain client or their industry, which may lead to unfavorable communication. That is why it is important to know several layers of management and decision makers within a bank. When market conditions get tough, there’s a need for competent, prudent management to navigate the challenges.
What should businesses consider as they look for a new bank?
When selecting a new bank, bank size, product suite, industry knowledge and team should align with a company’s wants and needs. Talk to the team to determine if they are people who the company can work and build a relationship with over time.
Talk to service providers such as accountants, attorneys, insurance agents, customers, vendors and industry colleagues for guidance and referrals to banks that would be a good fit.
Ask the bank for references from recent relationships. Ask these references for their overall opinion of the experience. Did the bank deliver the structure they proposed in a timely and efficient manner? How was communication during the process? How was the closing and onboarding process?
There is no bank that fits every company’s needs, so research is important. Talk to many people and vet several banks, along with those who would be involved in the banking relationship. Look for consistency in the messaging from the team. Also, hold each other accountable. A banking partner should deliver a certain structure in the arranged time frame, but the company also must deliver on what the bank is asking for during underwriting and post-closing. This builds goodwill and a strong relationship over time. ●
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