Hayenga, Wayne A.

English

Texas A&M University

L-1124
BUILDING STRONG RELATIONS WITH YOUR BANK
VVayne A. Hayenga*
Small business owners often feel uneasy when
dealing with their bankers. Limited experience,
knowledge of banks and training in financial
planning may make them feel hesitant to discuss
busine's matters with their bankers. Efforts to
establish a sound relationship with a bank can
be highly rewarding to agribusiness firm owners
in the retail, wholesale and service businesses. The
following guideline' will help small business firms
establish good lender-borrowing relations with
banks.
There are three main reasons why a strong bank-
customer relationship is helpful. First, a bank
familiar with its customers and their business can
supply faster and better services. Second, a bank
informed about its customers' business can give
better financial advice. Third, credit needs can
be better planned when the bank-customer rela-
tionship is on a solid foundation.
To build ·trong bank relations, a borrower
needs to (I) 'elect a bank that can and will meet
the firm's needs; (2) know the banker and earn
his re 'pect; and (3) share with him business plans
for the future.
SELECTING A BANK
An advantage of using the same bank for your
busines' account as you have used for your personal
account is that you already know one or more of
the bank's officers on a personal basis. However,
your per 'onal bank might not offer the services
needed by a growing retail or service agribusiness
firm. Ask your banker if he can supply business
'ervices such a (1) credit references, (2) financial
and investment advisory services, (3) the type of
loans needed in your business, (4) discounting
accounts and notes payable, (5) check certification,
(6) 'afe deposit boxes, (7) night depositories, (8)
collections of remittances (lock boxes), (9) payment
""Extension economist-agribusiness, Texas A&M University.
38.11
of freight invoices, (10) check reconciliation services,
and (11) payroll accounting ·ervices.
If the 'en'ices offered don't match your needs,
discuss it with your banker! Banking is a com-
petitive business, and bankers are anxioll' to give
service to meet their customer" needs. Just as you
shop around for other business needs, explore the
available alternatives in bank services.
Whether you are checking your present bank
or shopping around, you will want to look at the
following three things:
Size of the Bank
Unless 'you need large loans, the bank's size may
not be important to your business. As your busi-
ness grows, your loan needs are going to grow. Ask
your banker what is the largest loan he can make
to one business. Will this limit po e problems as
your business grows?
Requirements for Loans
Before you open an account or need to borrow,
find out the bank's requirements and policy on
the type loans you will need. Ask question uch
as these: V\ ill the bank make the type of loan
that you will need? Is collateral required? If so,
how much collateral? How long does it take for
loan approval? What repayment term are avail-
able? What reports and supporting information
do you have to make? Will the bank give a "line
of credit"? Must you maintain a compensating
balance in the bank? All are important questions
that should be asked before a loan request is made.
Knowledge About Your Type of Business
Choose a bank that is familiar with your busi-
ness. Local banks often de elop a sub tantial
amount of information about the kinds of busi-
nesses in their area. This knowledge helps them
to understand and evaluate the financial require-
ments and financial tatus of bu ines es more
quickly.
T xes A&M Univer ity • Agri ul rei Extensio Servic • John E. Hutchison, Director Coli Station
KNOWING AND EARNING
YOUR BANKER'S RESPECT
Earning a person's respect is a key to having
good relations with anyone-including your banker.
A banker's respect is earned by:
· .. Showing good faith-keeping promises. One
of the most important factors in earning
respect is keeping promises. When you say
that you will make a payment at a certain
date, do it; or stop by before payment is due
and explain the reason for delay.
· .. Providing the bank necessary financial data.
Banks are in the business of lending other
people's money, and to do a good job of this,
they need good financial information from
borrowers. Providing the needed informa-
tion makes their job easier and helps earn
their respect.
· .. Inviting your banker to your business. Ask·
ing the banker to visit your business is a
good way to get to know him-and for him
to know you. During visits he can observe
your strengths as a manager. He will also
learn more about yonr business so he can
offer more sound financial advice to you.
· .. Introducing the banker to your assistants.
This shows the banker that there is a "back-
up" management in the business. It will
also make it easier for your assistant to con-
duct banking business while the manager is
gone.
PLANNING THE FUTURE
Financial planning offers yet another way to
build strong relations with a banker. Bankers
greatly respect the small businessmen who make
the special effort to plan. Bankers prefer dealing
with small firms that plan their financial needs.
Such men are usually considered good credit risks
because they know what to expect from their
business.
lVlany small retailers and service operators do
not adequately plan their financial operations and
cause themselves, and their bankers, problems.
Lack of plans or poor planning gets their firm into
financial crises. For example, some business owners
run into financial trouble when their firms' sales
expand more rapidly than anticipated. The reason:
the cash flow generated by the increased sales is
not sufficient to pay for their increased stocks,
parts inventory, and other current expenses. Often
the banker's reaction to such cases is "If only you
had planned for these increased expenses, it would
have been easier to help you."
Basically, financial planning involves four
things: (1) accura tely estimating the level and
timing of sales for a fixed future period-(that is,
3, 6, 12 months); (2) estimating as nearly as possible
the expenses connected with those sales; (3) de-
termining whether the business will need financing
to cover cash deficits and to pay its bills on time;
and (4) scheduling repayments on a line of credit.
Planning can help reduce the cost of financing.
Knowing your needs beforehand gives you time to
build your case for the necessary financing and
time to shop around for it. Proper loan request
documentation may also cut down on the interest
charge for the loan.
Progressive small business firms also make long
range plans. They try to estimate their financial
situation for the next 3 to 5 years. Discussing such
plans with their banker further strengthens their
relations with him.
Good data are essential in making financial
plans. Your accountant should work up financial
information such as profit and loss statements and
balance sheets. Also, analysis of your operations
such as expenses in relation to sales, inventory turn-
over, and your break-even point should be pre-
pared. In addition, cash flow forecasts, income
and expense budgets, and capital budgets are
necessary for complete financial planning. Show-
ing this type of information to your lender will
be helpful to him-and will show him that you are
on top of your business!
Reference: See Fact Sheet L-l103, "What Should My Financial
Report Tell Me?" for information on how to pre-
pare financial statements for managerial control.
The same type of information is useful in building
strong bank relations.
Educational programs conducted by the Texas Agricultural Extension Service serve people of all ages regardless of so,io-economic
levels, race, color, sex, religion or national origin.
Cooperative Extension Work in Agriculture and Home Economics, Texas A&M University and the United States Department of
Agriculture cooperating. Distributed in furtherance of the Acts of Congress of May 8, 1914, as amended, and June 30, 1914.
8M-3-73 AECO 5


Building Strong Relations with Your Bank.

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Building Strong Relations with Your Bank.

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