We’ve written before about the current state of small business lending and the critical things you must do if you’re trying to get a bank loan in this environment. Now, we’re going to talk about a side of small business lending to which too few business owners give enough of their attention: your relationship with your banker.
In short, it’s not just about the money.
If you choose your lender carefully, you get more than just a loan – you get a strategic partner. But like any good relationship, it takes work to keep it good.
Treat your banker like any other valuable client or strategic vendor. The best banking relationships are based on pro-active communication. By establishing a pattern of regular communication — and not just when you need something — you build a relationship. It tells the banker that you’re more than just a fair-weather client. You’ll save time preparing for your annual loan review because you won’t have to re-educate your banker on your business. Plus, if your banker moves on or moves up, your close relationship will help you learn this sooner and connect you to your new account manager.
Here are five ways to develop a better relationship with your lender:
1. Call your lender at least once a quarter. Share positive company news and update him or her on changes in your projections.
2. Routinely invite your loan officer (business banker or account manager) to stop by and see your business first hand.
3. Send personalized birthday/holiday cards to all of your bank contacts (skip the fruitcake, however). One banker told us he always sends cards out to his clients on their birthdays and has never received one in return. Show your appreciation.
4. Make sure that you are providing accurate information. Most banks’ loan terms will require that you provide specific financial documents such as your income statement (P&L), balance sheet, accounts receivable and payable reports (with aging) quarterly or annually. It should go without saying, but please carefully read and review any documents before sending to your bank. Something as innocent as a balance sheet adjustment or a late receipt for a big sale can create major turmoil. Check each one for accuracy and provide an explanation for any unfavorable item.
5. Share (some) bad news. If you have bad news, don’t let your lender find out second hand. Always proactively contact the bank and explain what has happened and why. Make sure you explain the impact on your business and, most importantly, how you are fixing it. By being forthcoming, you give your banker the opportunity to be part of the solution and you demonstrate your own competence as a CEO and problem solver.
One word of caution: There’s a difference between sharing relevant information and baring your soul. Be selective in the bad news you share and do not whine, moan, or play “ain’t it awful” with your banker.
Here’s how one business owner we know learned this lesson the hard way:
“I met with my banker, Ray, one day for lunch and poured my heart out after a disappointing season. I told Ray about our personnel issues, new competitors, the increasing price of gold and its impact on margins and jewelry sales, and even how reduced rainfall during prime season had negatively affected sales because the tourists spent more time on the beach and less time shopping. I sang the blues through the entire lunch.”
It took three years of working with that banker for the owner to recover from that one-hour meeting. That session was overkill and created the wrong perception.
The lesson: Never cry the blues to your banker. Save your bad news laundry list for someone outside of your business circle — like your therapist or hair stylist –unless they’re lending you money.