Why They Call It A Banking Relationship

May 13, 2010

Locally we go through a “loan renewal season” for smaller bank customers. It comes after tax season, so that the owners can provide their tax returns to their bankers. Sometimes these are the first financial statements the owners have seen for the whole year. This year, being my first Loan Renewal Season since becoming a partner at B2B CFO®, I paused to reflect on how relationships, whether banking or social, tend to have the same elements and how we can learn from the experiences.

A relationship requires a lot of work and commitment. Greta Scacchi .

Remember it is called a “Loan Commitment”. When Bankers make a Loan Commitment to your company, they become investors in your business. Once a year they are required to review their investment and their relationship, to determine if they want to reinvest. Bankers gather the company’s annual financial information and forward it to their underwriters to analyze the performance and prospects of the company. With large customers with large transactional needs, the amount of data available – and required- is significant and can tell those bankers what they need to assess their investment. The financial information for larger companies is easier to analyze because there are similar, public companies to benchmark against. Bankers for smaller customers must be able to add context to the financial information, this context based on their understanding of the business gained through their personal and professional relationship with the owner of the company.

Never assume that the guy understands that you and he have a relationship” Dave Barry

Smaller customers, $30 million and less in size, are often in market niches where there aren’t public companies to benchmark against. They depend upon their relationship with their banker, and the “soft” non-financial information he has gained through his interactions throughout the year to add context to the financial data they provide. The two aspects of that “soft” data are intensity and duration. Intensity speaks to the degree of connectedness the company has with the bank and the banker. From the bank’s perspective, is it a single loan, or is the bank handling payroll processing and other service needs as well? How has the company performed using those services. From the Banker’s perspective, how often do the customer and the banker meet and talk about company issues, the economy, and perhaps even golf scores? What is the frequency that the customer provides financial information – monthly, quarterly or annually? The customer often confuses the difference between the banker and the bank. The Intensity of the relationship with the bank itself is determined by the breadth and depth of the bank services that the company uses. The Intensity of the relationship with the Banker is based on the time and the information exchanged with the Banker. The duration is dependent on how long the relationship has existed. The Banker prefers to write a commitment with someone they have known.

Some customers have noticed that bankers have taken control over the intensity of the relationship. The banker isn’t the “Bank”, but they are the Bank’s representative, so he is bound to convey the Bank’s interests when he advocates the commitment. Banks have changed reporting requirements, increasing the frequency, quantity and quality of the financial information they receive. All bankers are implementing requirements for projections and annual business plans, information previously requested of larger customers. As a B2B CFO® Partner, I am frequently called on to work with companies that have never put together a business plan forecasted their cash needs or reported monthly. Now, when approaching a bank for a loan or loan renewal, make certain you have complete and up-do-date information concerning the present financial situation of your business. This would include, at a minimum, the business plan, your personal balance sheet, business forecasted and historical financials, and 13 week cash flow projections. Your B2B CFO® can help create and maintain these required documents.

In today’s economy, bankers need to understand that the business owner has a vision, a direction for the business in the long term. Understanding this vision helps the banker to anticipate when additional needs will arise due to growth, replacement of worn equipment, or responses to the company’s customer demands. Formal meetings should include the owner or president of the company, the B2B CFO® and the banker so that financial concerns can be dealt with quickly, with the focus of the meeting is less on past performance and more on the future prospects. Your banker will want to review your company’s performance against the projections he received at the beginning of the year and will want to understand the actions the company is taking to correct or continue the performance. With your B2B CFO® by your side, your relationship with you banker will satisfy both your company’s needs and the Bank’s for years to come.


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