In Credit Sickness Or Borrower Health: Six Secrets For Faithful Small Business Banking Relationships

Would you like to have a consistently reliable source of loans for your small business

? Then you must learn how to invest in your lending relationships. Only then will you have a stronger and more durable partner for business financing.

The dynamics between a borrower and lender should be like a healthy marriage or dating relationship. The partners stay close, are honest, have mutual understanding, are peacemakers, loyal to each other and give affirmation. But like any valuable thing in business you must invest time and quality effort to get results. A close and fruitful business lending relationship requires years of nurturing by you and your banker. I have learned a few lessons after more than $4 billion of borrowing activity so let us explore how you can unlock the secrets to reliable lending relationships.

Stay Close to Your Lender: Your banking relationship will thrive with closeness. Lenders like to know you by face and name. Creating a close professional relationship may help you get better loan terms and pricing and may facilitate the credit approval process. A borrower that is familiar to a lender, when all else is equal from a credit perspective, will often be considered a better credit risk. Spend some time with your banker at lunch, on the golf course or a quick office visit to say hello. Be available to meet with your banker and senior banking executives. This will cultivate an environment of trust and respect.

Be Open and Honest: There is a push and pull between the small business borrower and lender regarding disclosure. The lender prefers prompt and full disclosure. Many borrowers prefer selective disclosure when reasonably requested. The benefits of more full disclosure may include a greater trust between borrower and lender, potentially better terms and pricing on future loans, a more harmonious relationship and better dialogue if problems come up. Bad news does not get better with age. Staying close and being open with your lender can help create a productive borrowing relationship.

Cultivate Mutual Understanding: The borrower can enhance the relationship by understanding the perspective of the lender during negotiation. For example, your loan might require higher reserves due to bank regulatory requirements. The higher reserves cut into the bank profit margin. To compensate for a lower profit margin, the bank may ask for a higher interest rate or fee structure. A borrower demand for market pricing on a non-standard loan could frustrate the negotiation and create unrealistic expectations. Your body language can also influence mutual understanding during the loan negotiation process. So be aware of verbal and non-verbal cues that can spoil a productive working relationship.

Broker Peace: Be careful about drawing battle lines too quickly. My experience is that the borrowing and lending relationship thrives on diplomacy and tact. If positions get hardened too quickly, the possibility of reaching a mutually agreeable solution is diminished. Remember, a good agreement is one in which neither side gets everything they want and feels they left something on the table. If one side believes they got an unfair deal, the chances for an escalating dispute or deal fracture later are greatly increased. Cultivating understanding and brokering peace are essential for a productive borrowing relationship.

Be Loyal to your Bank: Banks love customers that provide ancillary business and associated profits. In addition to borrowing money from your bank, you can aggregate deposit accounts, cash management business, and ancillary banking services. You can enhance your chances of getting the best terms and pricing on other banking products by expanding your profitability to the bank. Your line banks should have the opportunity to bid on your loan requests. They will appreciate the chance to compete for your business.

Promote Your Banker: Compliment your banker in private and public if you are happy with the service you receive. Consider allowing your banker to publicize the financing they provided for your project (at their expense, of course). When you talk to your fellow borrowers, recommend your banker for any financing needs they may have. Unlike a personal relationships which demand exclusivity, a great lender has many quality borrowing partners.

There you have the six secrets to a successful small business banking relationship. Stay close to your lender, be honest and open, foster mutual understanding, be a peacemaker, be loyal to each other and promote your banker at every opportunity. You can be a more durable borrower and less vulnerable to shifting credit markets by following this relationship advice.

by: Michael Shelton

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