Banks – why we need them (and why they need us)
Posted 10/05/2011 by David
Throughout our history, banks have played a pivotal role in the evolution of society in general and the economy specifically. So why do many individuals and business owners loathe banks and bankers? We meet many clients who are having great difficulty with their banks and just as many thankful they have a very supportive relationship. Why then the disjoint?
In our experience, it seems that the banker/ client relationship can sour for a number of reasons. One reason may be there is an “expectation gap”. There are loose discussions between banker and the client at the outset of the relationship about services/ products that the bank can provide. But when it comes time to deliver, the process sometimes becomes much more onerous than the client expected. Frustration arises as a result, mostly on the client side. However, the banker is also frustrated because they cannot get all the pertinent information they need from the client – to satisfy the client.
The client may sign the bank’s offer to lend or “facility letter” without fully understanding its contents – more specifically his obligations under this letter. The most common misunderstood or even overlooked area is the covenants surrounding financial ratios - minimum working capital levels or maximum debt to equity levels. Someone in the organization, like your accountant or CFO, needs to understand the exact definitions/ calculations of these ratios. Clients get upset when the bank calls to inform them that they are in violation of a covenant to which they agreed they would not breach. Then comes the extra bank fees for the breach. Then the frustration level elevates further.
On the other hand, the banker can become very frustrated when the client calls on a Friday afternoon saying they need an immediate bulge on their operating line to meet the extra payroll demands of that period. Nothing seems to frustrate a banker more than this. When they balk it is generally because of the lack of notice received. The bank has processes it must follow and often requires more time than a couple of hours to process such a request. Now the banker is frustrated and so is the client.
Businesses need to consider seriously this statement “the bank is one of the biggest, if not the biggest, supplier you have”. Think about this statement – the bank is certainly a supplier to you. They supply you credit. Without the bank, it is very difficult to grow. Consider one of the major reasons the economic turnaround was slow to get going – banks were not lending. Now look at the micro level – your company. It is extremely difficult to grow your company without financing, either via a line of credit or term debt.
So consider this – you take your steel or other major supplier out for lunch, a round of golf or fishing. Why? You need to ensure the supply of those goods or services continues uninterrupted and the price reasonable. When supply gets tight – your aptly constructed relationship will hopefully ensure your supply rather than your competitors. View your bank the same way. Our clients that purposely worked on their banking relationship during the good times were able to ensure their “supply” of ongoing financing was maintained or even increased during the bad times. We have seen this time and time again.
Our experience in building our own banking relationships along with those of our clients has shown that the account and senior managers are actually people also. They get frustrated, tired just like the rest of us. They also don’t want bad or difficult clients. They have to report to the top brass and their results are monitored. Lastly, the banks are businesses. They need to grow their businesses and create wealth for their shareholders – just like we are trying to do with our businesses. So if we can make their lives easier by making the effort to provide them with the information they need, on time and accurate, we will begin to strengthen the relationship. Even when things are going well, talk with your banker – let them know how things are going. Invite them up to your office or shop, let them meet your team so they can see all the faces, not just yours. Do these things when the pressure is not on. Treat them like a valued supplier. Don’t get frustrated when you are assigned a new twenty five year old “relationship manager”. Embrace it and them.
We have always been a firm believer in the strong banking relationship. With a lot of hard work on our client’s part and the assistance of the banks, our clients have come through this recent difficult period stronger than ever. Banks - you don’t have to love em – just understand them…