We are proud to see our partner Kyle Enger, CEO of Relationship Banking Academy, share his thoughts on business banking in the September print issue of Seattle Business Magazine. Download the full article in PDF format here: http://seattlebusinessmag.com/sites/seattlebusinessmag.com/files/SBM0914_Banking.pdf, or keep reading.
With the surge of alternative lenders, competition among banks is stronger than ever. But what exactly does that mean for businesses?
It means you deserve more. If you only meet your banker once a year on a renewal, it’s not good enough. In order to take your business to the next level, you need a trusted advisor. Someone who understands where you’re going and how to get you there. If your banker isn’t investing in your business by taking the following actions, it may be time to change banks.
Understand your business
One of the biggest complaints from business owners is that bankers simply don’t understand their business. A good commercial banker should be well-versed in your company, competitors and the industry. They should be willing to get to know your business, commit to you, stop by to check-in and give you a proactive plan to avoid future risks. Here are some of the things your banker should and shouldn’t be doing to truly understand your business.
Utilize technology for your benefit
The majority of recent bank innovations have been used to make the customer experience more convenient, but not necessarily more helpful. We’ve seen everything from mobile remote deposit capture to online banking to mobile payments – all of which are keeping customers from interacting with the bank.
Contrary to what many think, technology can also be used to create strong relationships by giving bankers information about their customers to help serve them better. Using new software programs, bankers can see information like the current ratio, quick ratio, debt-to-equity, gross margin, net margin and ROI within seconds. With this insight, a good business banker should be able to:
- Compare industry averages and ensure clients are up to par
- Review key business ratios and explain them in a way that makes sense
- Become a trusted advisor for your specific business
- Provide financial advice on all parts of your business
- Monitor the financial health of borrowers 24/7
- Immediately flag problem areas to mitigate risks
Heighten financial acumen
Banks have access to a vast amount of customer financial data, but sometimes fail to use this information to its full potential. With insight into consumer purchasing behavior and business’ financial history, banks should be able to cater their products and services to clients in a personalized manner. However, many lenders walk into prospect meetings without knowing much about the business. Their mode of operation is solely focused on trying to secure new clients by building rapport – they are what we call surface bankers.
In the old days, bankers used to be able to get by schmoozing at rotary clubs, but today’s business owners needs more. The new generation of business owners are more sophisticated, aware of new technologies and have a wide variety of lending options. They require specific financial advice according to their industry niche, and a one-size-fits-all approach to finance won’t cut it anymore. It’s time to raise the bar and start expecting more from them.
A good banker will educate you on what you need to know such as equity, inventory, cash flow, retirement planning and sweep accounting. They should also know about new technology and consult you on intermediate financing, terming out loans that are not revolving, or locking in with low interest rates. Following, they will bring in the right specialist to match the product according to your needs. Lastly, they should present all of these options based on your particular location, industry and vocation.
Go beyond the price
Many business owners make the mistake of comparing banks based on cost, but the value of a healthy banking relationship and a financial guide is priceless. So many bankers these days are application gatherers working on a transactional basis, but that’s not what business owners need. They need to stop looking at the short-term convenience of brands, price and location, and start considering the long-term effects a trust financial advisor can make on your business. Interview your banker by asking them these questions before deciding:
- Is the banker familiar with your industry?
- Does the bank offer the services and products you want?
- Are they willing to meet you in-person?
- What is the lending process?
- How fast can they close a transaction?
- How long have they been with the bank?
- What’s the turnover rate?
- Do they have a business division?
In the final analysis, the most important aspect of dealing with your banker is establishing a relationship of trust and confidence. If you are well prepared and indicate that you really understand the financial aspect of your business, you should enjoy a very positive relationship with your banker. Financial planning for a closely held business is not complete until the owner has established a plan for the orderly succession of the business.
Traditional and community bank offerings
Each bank has a wide variety of products and services, and it’s important to weigh the pros and cons according to your needs before making a decision. For your traditional C&I (commercial and industry) operating line of credit, a community bank might be best. They’re going to understand your business, industry averages in the community and provide local insights. Community bankers should be working with you on a monthly/quarterly basis to help with your equipment financing, leasing, inventory, operating lines, and the cash flow of your business. For transactional real-estate type of requests, you may be better suited with a larger bank. Bigger banks have more locations and a number of commercial bankers suited to help with business owner requests. It may be wise to open up multiple accounts as well.
When determining the best bank according to company revenue and loan amount, each bank segments the market place differently. But from my experience, there is a pivotal shift once a company reaches roughly $15-18M in sales. That’s when the company really starts creating enough volume and profitability to require a CFO. This position is responsible for getting the best interest rates, controlling LIBOR (London Inter-Bank Offered Rate) financing and obtaining the best price-based deal. This is when you need a corporate commercial middle-market banker.
However, there are 26 million businesses in America and only 1% of them are over 10 million in sales, according to the most recent report from the U.S. Census Bureau. Placing most business owners into the category of small business, which does not yet involve a CFO. This category requires a business banker to fill the role of a quasi-CFO and provide a high level of business acumen– be it a big bank, credit union, alternative lender or community bank. With so many financial decisions resting on your banker, it’s more important than ever to building a strong relationship with them. By doing so, they can understand your specific niche, relate to your pain points, and provide you with a personalized path to financial success.
A partner in your business, not a banker
“Sixty percent of businesses are misfinanced using short-term money for long-term use,” according to The U.S. Business Banking Board. In other words, finding a great business banker is not easy. They are so much more than bankers, they are partners in your business who share your vision and goals on a holistic level. Unbeknownst to many business owners, bankers actually want to make loans and help your business grow. Finding this key individual is the first step in building a strong foundation for the future of your business. Just remember to ask yourself – is my banker business-centric or bank-centric?