Banking Relationships

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You own a small retail business and you plan major improvements to the premises. You apply for a loan at the bank you’ve been using for years. It’s the first time you’re applying for a loan but you’re not bothered by all the hand-wringing over tightening credit. All of your financial statements are in order, your checking account has a decent balance and the business is profitable.

To your dismay, the bank turns you down.

According to Robert C. Seiwert, senior vice president and director of the American Bankers Association’s Center for Commercial Lending & Business Banking, banks have plausible reasons for denying credit in today’s turbulent economic times. “Your bank might be trying to bolster capital and preserve liquidity by reducing outstanding, but undrawn, lines of credit. Perhaps your firm’s deposits have dwindled due to a sales slowdown, causing a once profitable banking relationship to become much less so,” Seiwert says in a paper published in February, titled “Assessing Your Banking Relationship: Seven Key Questions.” 

However, another reason may well be your lack of a personal relationship with your banker that shows him or her just how valuable your business is, Seiwert says. Indeed, your banker may view your relationship as nothing more than a series of unrelated transactions, he says. To find out if you have a meaningful and valued relationship with your bank, Seiwert suggests you take a “relationship test” by responding “true” or “false” to the following statements:

1. My firm has a bank relationship manager assigned to our account and we have contact (by phone or in person) at least once per quarter to update the bank on recent developments at our firm and within our industry. 

2. Our bank relationship manager understands our industry, our position in the industry, our firm’s value proposition, where we are today and where we’d like to be in the future. 

3. We provide our banker with updated financial information (historical and projected balance sheet, income statement, cash flow information to include projection assumptions and commentary on actual performance) regarding our progress toward achieving our goals on a timely basis.

4. Our senior management team meets annually with our relationship manager and his/her boss to discuss our firm’s financial performance and challenges and to understand the bank’s perception of our performance.

5. Our relationship manager proactively brings us ideas to help us achieve our goals.
6. We understand how the current economic crisis has affected our bank and our relationship with the bank (i.e., the availability of credit to our firm and the safety of our deposits).

7. Our firm makes sure that our banker is aware of all of our business with the bank (e.g., both business and personal) and that it makes money on our total banking relationship. In addition, our firm provides our banker with referrals to other profitable businesses.

Seiwert says a “true” response to all seven statements means you have positioned your firm well with your banker; to five or six means you still have room for improvement in developing a meaningful dialogue with your banker and benefiting from his or her advice and counsel; and to four or fewer means you have not positioned your firm well with your banker and are putting your firm at a competitive disadvantage in terms of receiving the funds you need to grow and prosper, obtaining the best rates available for the financial products and services your business needs to operate, and receiving ideas and advice to help you achieve your desired business goals.
“Your firm should seek a bank that rewards a relationship approach to doing business with them and a banker who is able to give your firm the financial advice that it needs to survive and thrive in today’s ever-changing economy,” Seiwert says.