“Selecting Your Banker”

OVERVIEW [top]

In any growing business, your bank is a silent partner. It holds no equity, doesn't attend board meetings, and isn't there to sweep up or turn out the lights at the end of the day. But your bank, and an account manager who knows you, can be as important as any investor to your business health. If your banker knows your company, your industry and your community, your banker can be an important financial advisor and a critical component of any growth plan.

If you're leery of banks these days, join the club. Mergers and declining service levels make it tempting to write off banks in their traditional role as silent partner. But that doesn't have to be the case. In this quick read, we'll show you:

• how to find a good banker
• what to expect from a good banker
• the signs that it's time to find a new banker.

SOLUTION [top]

Finding a good banker

The time to foster a good relationship with a banker, says Dan Hempy, senior vice president of Oregon Commercial Banking for US Bank, is when you don't need one. That's early in your company's life when a credit line, letters of credit or international banking are future issues.

Hempy says that relationship is even more important than the institution itself.

"It's like picking an attorney or an accountant, or PR firm. The fit matters. Beyond that, look at the experience the bank has providing products and services you might need. Rely on the credibility of the marketplace: Ask for the names of companies the bank says they've helped in your space."

Charlie Forsyth, a VP and team leader of business banking for West Coast Bancorp, a community bank, offers this checklist of things to think about when picking a bank and a banker:

1. Will you have an assigned banker, or will you be sent to use the white courtesy phone in the corner?
2. How important is your relationship and business to the banker?
3. Is the banker knowledgeable, interested and proactive in helping you?
4. Does the banker listen to your needs?
5. Does the banker look for ways to add value and provide business advice?
6. Is the banker connected to the professional community, and can he or she help connect you to others?

A bank's financial soundness should be a primary criterion for your choice. Like private accounts, all of a company's accounts at a bank are FDIC-insured for a maximum total of $100,000. Sole proprietorship accounts are considered to be the owners' private accounts for FDIC purposes. Also, if your bank folds and your loan is passed on to another lender, the loan to a proprietorship may be more likely to get called in. Compare the financial strength of banks in reference books at your local library. Be sure to ask at the reference desk to see bank listings in the "Book of Lists" that most local business news journals publish annually.

You also can ask each bank you're considering to provide you a financial disclosure statement and make your own comparisons. The greater the capital to asset ratio, the safer the bank. If a bank's leverage is high enough that the ratio is below six percent, be cautious.

What to expect from your banker

Your account manager should be an advocate for you and your company, and should understand who you are and what you do.

Don't be afraid to educate your banker. Give her trade magazines about your industry. Take her on tours or business calls. Give her your business plan. If you banker asks for information, provide it in a timely manner. She can't help you without it. If she seems uninterested in learning about you, you've got the wrong person.

Your account manager may not be the person who makes the final decision about your loan requests. But she should advocate for you with the committee or person who does.

Expect your banker to introduce you to others who can help you. If your banker is well-respected, it can help win respect for you, even if you're unknown.

When it's time to change banks

If big banks and mergers scare you, should you consider a smaller community bank? That depends on how big your company will become. Look for a bank that can serve all the needs you are likely to have in the next decade, because it's a relationship you want to avoid beginning anew.

You can generally expect a higher level of service at a community bank, and less turnover. But the good news is that many large banks are discovering that their low service levels have driven away customers. So banks such as US Bank are now adding "decision makers" back at the local branches.

Whether your bank is large or small, if your banker is transferred or starts taking much longer to get a decision for you; if you are given fewer choices for face-to-face contact or services; if employees say, "That's not my job," it's time to look for a new bank.

"A merger is not automatically a reason to leave," says Forsyth. "It really comes down to the people. If you've maintained your banker through a merger, keep them."

REAL-LIFE EXAMPLE [top]

John Koenig has discovered that you can take your bank for granted — but it can cost you. He started Water Closet Media on a shoestring and a credit card in 1993. The idea was simple. Create advertising messages and put them in a place no one can ignore: on the inside door of bathroom stalls or over urinals. Now, with offices in Phoenix and Portland, he's growing, adding employees and looking for an equity partner, possibly an outdoor advertising company.

He picked his bank when he started because it was just down the street and he needed a checking account.

"They weren't willing to take a risk on me at all," he says. But he got to know the people, even a banker by name, and so he stayed. As his balance in checking and savings grew, he asked for and got a small line of credit, though he grew the company mostly out of cash flow.

"I wouldn't be where I am now without that line of credit," he says. Then the banker he knew left but Koenig stuck with the bank, even when his requests to increase his credit line were denied.

"They don't understand my business," he says now. "There are things that are hard for them to grasp, the service nature of the business, and the way our billings work," he says. Now he realizes that he didn't work enough on relationship at the bank.

"I never took them my business plan, or kept them in the loop." As he searches for equity partners in the advertising business, he's asking a question.

"Who's your banker?"

DO IT [top]

1. Take stock of your company's financial services needs for the foreseeable future. Will you need credit, international banking services, or investment services?
2. Look for a bank known for helping your industry. Some banks specialize in agriculture or technology, for instance. Ask peers in your industry where they bank.
3. After you develop a list of banks that can serve your needs, make appointments with commercial or business bankers at those institutions. Interview them, looking for one that shares your beliefs about business growth, and who is interested in your company.
4. Choose a banker, and then communicate regularly, even if you don't need anything. When you do need something, your banker will be up to speed, and ready to help.
5. Apply for a line of credit. Your bank's willingness to extend you a line of credit is an indication of its friendliness to a business in your situation. The right to borrow at will means you'll need to keep less cash on hand to meet emergencies.

RESOURCES [top]

Books

Small Business Insider's Guide to Bankers by Suzanne Caplan and Thomas M. Nunnally (PSI/OASIS, 1997).

Internet Sites

Benefits of Making Your Banker a Friend. U.S. Small Business Administration, 1996.

"How Well Do You Know Your Banker," by Joseph R. Mancuso. Startup Journal (June 25, 2002). Be sure to take the accompanying quiz.

"Learning to Live With (or Without) Your Banker," by Alessandra Bianchi. Inc. (March 1995): 32-34+.

"Attacking a Loan," by David Worrell. Entrepreneur (July 2002): 51-52.

"Establishing a Business Relationship." Excerpted from Small Business Start-Up Guide, 3rd edition, by Robert Sullivan (Information International, 2000). Arkansas Small Business Development Center.

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Article Contributors

Writer: Kathy Watson