n this short admonition in Hamlet, Polonius has wrapped the popular wisdom of the world into only seven words. All too frequently, the relationships between banks and their loan customers are adversarial — hostile! Some of this may be inevitable because both parties have a rightful interest in and a claim to the same treasure. Despite the most careful loan agreement, both parties are also hostage to a future that is never fully predictable.
However, in today's complex and highly-competitive economy, borrowers and lenders are dependent upon each other. Bankers need loan customers, and businesses need credit. The legitimate goals of both parties are uniquely coincident.
Of course, the emerging business does face some hurdles. Almost all businesses including banks tend to favor the $10.0 million contract over one hundred $100,000 contracts — frequently, not a wise strategy. A young emerging company does not have the track record offered by an older established corporation. And the emerging business may seem disadvantaged due to lack of depth of staff and lack of a strong asset base.
But the emerging business can focus on its strengths, and it can educate its bank to focus on its strengths. For example, the venture may command a small — but unique — market niche, it may possess some leading-edge technology, or it may be in a strong growth industry. The key is to educate our bank to understand why our emerging business can be an attractive loan customer.
As every college Admissions Officer knows, the first step in education is getting the right student. To educate our bank about our business, the first step is to get the right bank. Despite the snappy advertisements and the colorful stuffers with one's monthly bank statements, the priority of most banks has not been the smaller business. Especially with the recent merger mania in the banking industry, volume is being sought in preference to selectivity. It is essential to shop carefully for the right bank and the right loan officer, to begin a relationship meeting both the needs of our business and the needs of the bank. Even in today's tight credit market, there are banks that understand and welcome the emerging business. But it takes time and effort to find them.
Like a stable stool, a good banking relationship rests on three legs. (1) Our bank has to be convinced that our emerging company is credit-worthy; even the possibility of a bad [non-performing or classified] loan immediately sours the best relationship. (2) Our bank has to be convinced their partner is healthy and, preferably, growing; it makes much more sense for a bank to grow through the growth of its loan customers rather than to grow by always having to add new loan customers. And, (3) our bank and ourselves — as partners — must always maintain open, complete and continuous communications so our loan officer is fully apprised of what is happening in our business; problems can be worked out together, but surprises cannot be tolerated.
Banks are in business, too. Banks are in a fiercely competitive business, and they need your business. Today, the loan demand among larger companies is, in fact, declining as they are finding easier access to the equity capital and institutional debt markets. Therefore, the more astute banks are looking to the emerging business for their growth — for their future. Every loan officer is simply looking for good business.
The job of the owner/manager of the emerging busines is to educate our bank with the same care and diligence displayed in the education of a major customer. But in teaching, we invariably learn, too. In educating our important customers about our product or service, we learn to understand their needs more fully — and respond to them. In educating our bank about our business, we learn more about our own business as well as the needs of the bank — and respond to them. Doesn't the effective teacher usually do more listening than talking?
A good banking relationship is a good partnership!
Your comments and suggestions for these pages are most welcomed!
Revised: November 10, 2023 TAF
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