4 Things You Can Do To Make Your Bank Love You

Have the interest rates and annual review fees charged by your Bank gone up? Are you being asked to submit reports monthly? Have you had trouble getting a loan or LOC extended – even with personal guarantees?

A number of business owners we meet are not happy. Some can’t get access to new financing. Others are saying things like “I’ve been a good customer at my bank for 15 years.  I’ve had 2 bad years and they are treating me like a new customer.”

So, when I was talking to a Commercial Account Manager at one of the banks recently, I asked him about the situation. He talked about what the past 18 months has meant to their business – higher loan loss provisions, increased costs of monitoring accounts etc. Then he told me about the risk factors they assess when they’re doing a scheduled review of an existing customer or pursuing someone they would like to do business with.

The financial ones are what you would expect – trends in revenues, gross margins, and inventory and accounts receivable days. They also want to be sure that the dividends the owners are paying themselves reflect the company’s operating performance.

But it was the 7 non-financial risk factors that caught my attention. Here they are. (The “editorial” comments in italics are mine):

  • The length of time the company has been in business. If you’ve been in business several years good if not, there’s nothing you can do about it so focus on the others.
  • How well the business performed in previous “adverse conditions”. If you were around and performed better than your competitors make really sure the Bank knows about it. If you weren’t and/or didn’t, focus on the others.
  • How well the company responded to the Bank if it had financial “challenges” in the past. Would you deliberately annoy the biggest supplier of inputs (human or material) to your product or service? Then why do that to your Bank? It may well be uncomfortable but it won’t hurt as much as shooting yourself in the foot.
  • If there are currently any liability issues? If there are, go for full disclosure and be pro-active – tell them about the plan you have in place to deal with them.
  • Whether there’s a succession plan and key man life insurance in place. Any company which has grown beyond “start-up” mode should at least be thinking about an exit strategy and/or succession plan. And every company should have key man/woman insurance.
  • If there’s breadth in the management team – with a clear separation of duties. If you’ve had a business for 4 or 5 years, still tightly control everything yourself; have no key person insurance; only did “all right” or “OK” in the last downturn; and had to be asked repeatedly for information, you should expect to be asked for personal guarantees – and you may be lucky to find a Bank that wants to deal with you!
  • Report in a timely fashion. There’s really no reason not to be reporting regularly. You get the information to provide feedback on how well you’re implementing your strategy anyway (don’t you?) So why not share it?

There’s not a great deal you can do today to impact the first 3 factors. And if there are liability issues they probably result from something that happened in the past. But you can have an immediate, ongoing impact on your ratings in the last 3 items.

Why? Because a variety of forecasters and commentators have predicted that the financing situation will be the same in 2011 as it was this year.

And if that’s the case then there are 4 things you can do to make your Bank love you;

  • Operate profitably and efficiently during these “adverse” conditions. This will give you a double win. You’ll ace all of the financial risk factors. And you’ll build a track record for the future in the second non-financial factor.
  • Regularly provide all of the information your Bank requires – before they ask for it.
  • Either begin or continue to spread responsibility for the company’s success over several key people, making each one responsible for a separate area e.g. selling, accounting and operations.
  • Buy or update your key man insurance and develop or update your exit/succession plan. (We can recommend professionals to help you with both.)

You’ll improve your chances of having enough funding to get out of the recession first/stronger.

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Tags: business, business owner, company, competitors, financing, gross margins, Jim Stewart, management team, ProfitPATH, revenues, risk factors, succession plan

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