Dealing with your banker: More communication and fewer surprises

With today's economic challenges, the climate for financing is a daunting one. There are some things you can do, however, to exercise some measure of control and to help your situation. This article will address some sound advice as it relates to your banking relationship. Excesses in the banking industry are offset by a tightening of credit across the board, higher borrowing costs, and lower loan advances to any borrower. Where only a year or so ago interest rates were low and money was readily available on very favorable terms, today the pendulum has swung to the opposite side of the spectrum, and many businesses - especially ones that are capital intensive - are caught in this change of attitude regardless of the relationship that they enjoyed with their particular bank. What to Do - Communicate It is increasingly important to communicate with your bank on a regular basis to keep them aware of your needs going forward, the reasons for any changes in your borrowing cycle and periodic updates on the financial performance that you are experiencing. For example, if there are a large amount of change orders on a major job at a construction company, you would do well to let your lender know that sooner rather than later so they will be better prepared to work with you should you need additional financing. Similarly, if you are a manufacturing and distribution company, and inventory turnover is down, don't wait for your next financial statement; tell your banker today and explain what you're doing to improve the situation. In a tight credit market, bankers will pay far more attention to details that are very often ignored in a better economic climate. It is also important to inquire about your existing credit facility to ensure that your line is in place when needed, and that the bank will make advances promptly. Ask your banker if he or she needs any additional information to avoid delays caused by requests for additional documents etc., at a time when you may need capital quickly. If you sense any hesitation to accommodate your requests, it may be time to interview another bank or two with experience in your industry. Lending needs vary between industries, and a banker with your specific industry knowledge can be a real asset. It is often the case that banks will do more to attract a new client than they will to keep an existing customer. Loyalty in every aspect of business is extremely important, but loyalty sometimes leads to complacency. It's a good idea to know what your banking relationship is worth to others, especially in a time when borrowing costs are also rising appreciably. What Not to Do - Avoid Surprises If your business is experiencing a soft period for any reason, it is advisable to meet with your banker to discuss these issues before you deliver your annual financial statement or tax returns at line renewal time. Banks don't like surprises, especially in tough economic times. In fact, none of us do. It is far better to communicate the bad news as well as the good news, and discuss the remedies and adjustments that you are implementing, and also gain a sense of the level of comfort or discomfort that result from the dissemination of this information. Edward Mirabella is a banking & business development consultant at Grassi & Co., Lake Success, N.Y.