The Fear of Changing Banks

By Larry Chester, President, CFO Simplified

They just don’t make them like they used to. That’s a common expression that is probably universal. In some cases, it’s a good thing. I don’t think that anyone would be happy driving to work in a car that was built in 1910. On the other hand, in some cases it’s a bad thing. There just isn’t the loyalty in the workplace that there used to be. Does anyone think that they’re going to work for a company for 20 – 30 years after they get their first job? I don’t think so.

And certainly, the banking environment has changed dramatically. Services are delivered electronically. Cash moves nearly instantaneously from one account to another. The personal banker at large banks is a figment of our imagination, and community banks have picked up the mantle of personalized service. Decisions are made based on information that’s found on the web, because nothing is private anymore, especially not your banking experiences.

So, for business owners and their companies, what are the things that they need to look at to determine if their bank is still the right bank for them?

Changing banks is a real pain. First of all, many business owners are nervous talking to their bank. They have a good relationship with the bank now, but they are afraid that if they have a small downturn, the bank is going to shut them down. That means the bank you chose is a critical resource — for every business.

Here are some things that you need to pay attention to, which will not only improve your relationship with your existing bank, but help you find a new bank that is more appropriate for your current needs.

1. Communications – This is your first tool with any bank. Keep in touch with your banker. It’s important to reach out and keep them informed about what’s happening at your company, both good and bad. Remember that a good banker has deep contacts with all their clients. If you have a problem, your banker may have a contact that can help you with a solution. They want you to succeed. Why? So that you can repay the money that you borrowed. They will always work with you to find a solution. As bankers have said for years, “there is only one thing that a banker hates more than bad news, and that is surprises.” So, keep them informed.
2. Services – Be aware of what you and your company need, and what services your bank provides. Most banking services are universal now. Even smaller banks provide services to their clients that make them feel like big banks. But you need to be knowledgeable about what services are available in banking, and what services your company needs. Think about the way your company uses money, how it gets payments from your customers and makes payments to your suppliers. Be aware that services from banks are changing almost monthly. As technology improves, your bank may have added services that they didn’t have just a few months ago. Think in terms of Treasury Management. How the bank can handle and manage the money that moves through your accounts. That’s something that you can learn by staying in touch with your bank. But in addition, it’s also a good idea to talk to some other banks every few years. Stay attuned to the marketplace. There are many banks in your community, and they are all very interested in getting your business.
3. Financial Needs – Understand your financial needs. Know how much money you need to operate your business. Understand what you have to do to get the bank to approve loaning you money. If you have a cash flow forecast, make sure that all your cash needs are shown on it, and that you have projected out your needs for more than the typical 13-week forecast. You will want to make sure that your explanation to the bank is going to include whatever your needs are for the next 12 months. Your banker must go to a committee to get your loan approved. That banker doesn’t want to go back to the committee in another few months with another request. It’s important that the bank has confidence that you know your company’s needs, so that they can be prepared to provide it.
4. Know the Market – As your business has grown over the years, its needs have changed. For example, your need for a line of credit to help fund your growth, or for different cash management services. Maybe you need an SBA loan to fund an acquisition or expansion? A bank that was ideal for you when you were starting out may not be the same bank that can provide you with a multi-million-dollar line of credit. If you’re buying or selling overseas, does your bank have the connections to give you that level of service? Do they have direct contacts with international banks, or do they work through a correspondent bank? Either situation works, but a direct connection allows you to transact business more efficiently. Determine your needs and find a bank that serves that market.
5. Have a Plan – Be sure you know what you need to do to open a new banking relationship. It’s not as easy as getting a new credit card. Once you get a term sheet, be sure that you understand what the bank’s reporting requirements are. How often are they going to want financial reports? What are the measures that they will use to make sure you’re in formula? They will judge your company’s performance based on profitability, cash flow, debt service, tangible net worth. It’s important that you understand the measures that the bank will use to determine if you are in compliance — meeting the bank’s requirements. Understand their requirements before you sign on the dotted line.

Every business needs a banking relationship. At a minimum, you will need a checking account to handle payroll, payables and deposit customer checks. But as you grow, you may need merchant services (credit cards), a term loan, a line of credit. You might need to operate in foreign currency. It’s important for you to have the right bank for your company at the right time. Not every bank will be ideal for you. To do that, you must understand the services that you need, and find the bank that will be able to provide those services and more as you grow. These are not short-term decisions, but they are important ones to support your company’s growth.