What You Should be Asking Your Banker

What You Should be Asking Your Banker
(Or accountant or lawyer if you don’t have one)
OIA WebNews spoke to Bob Seiwert with the Center for Commercial Lending at the American Bankers Association for some insight into what conditions small businesses are facing in the credit markets. Here are excerpts from the interview.

Q: If I have a banking relationship already, aren’t I safe?

Seiwert: For a well-run business with a track record there is money available. But it may not be available at the bank you are banking with, so you better figure out where your bank sits. Not all banks specialize in small business loans. They may do them as an accommodation for your other business, but you want someone who really specializes in them. If you don’t have that at your bank, then you need to move on.

Go visit them and ask them, “How are you affected by the banking crisis?” Get very specific, as in, “If I was to ask for a loan today would it be available to me? If so, how much would it cost? On what terms? What would be the interest rate? What would be the required collateral?”

The main thing is that you are less likely to get the advance rate you used to get on hard assets, like real estate and inventory. In the past a 50% loan against inventory was the max. Maybe it’s down to 30 to 35 percent today.

Q: My personal credit is pristine, why do I need a “relationship?” Won’t a bank lend to me on the strength of my FICA score?

Seiwert: You can have pristine financial statements, but if I don’t trust you I won’t make the loan. If your total relationship is through a credit card, you are a total unknown. Every bank loan that is done, the first thing the banker looks at is your character. He asks, “Will you work with me if things don’t go as planned? If you had the money, would you pay me?” If you don’t have that relationship, if you just have a series of transactions, you have put yourself and your business at risk. That may be okay in good times, but it’s not a good practice going forward.”

Q: So, if I don’t have a relationship and need one, where do I start?

Seiwert: If you want to get the best rate, go to the bank where you have your operating accounts (checking, payroll, collections account). They want to keep that business. That’s where the profits are today – on the operating side. Banks still make money on loans, but those come and go. Besides, if you are a small business person, you want to have a meaningful amount of business with your bank. You want to be a bigger fish. It’s no different than dealing with suppliers for your business.

Q: What if I’m not happy with the customer service at my existing bank? How do I find a new one?

Seiwert: If you are a well-run business, there are still bankers out there that would love your business. The first thing I would do is call your lawyer or accountant and say, “look I need to develop a relationship with a bank. Who is on your short list and may I use your name as a reference?”