A recent article by Vincent Ryan of CFO.com and CFO Magazine notes the high level of dissatisfaction amongst small to medium business owners with their banking relationship. While I don't doubt the findings, I think that some of that article misunderstands or mischaracterizes the reality of today's banking marketplace.
This all comes back to how a business owner and its banker view their relationship: if the business sees the bank as a commodity (likely true in the cases cited in the article when so many expect to issue an RFP for banking services in the near future) as opposed to a value-added relationship, a down economy is almost certain to result in a disconnect between the needs of each party.
Conversely, when the two parties engage in their relationship in a way that works to the benefit of both -- I describe it as a single umbrella under which both parties seek refuge from the economic storms - both getting damp or wet on the periphery, but both staying largely dry -- the mutual needs of each can oftentimes be met as the challenges for both increase.
Changing course a bit, I would strongly disagree with Reuben Daniels' comment cited in the article that banks generally view lending as unprofitable - I can assure you that my 30 years in the business, at a number of institutions both large and small, have been focused on lending (along with the logical other revenue sources) to small and mid-sized businesses because it can be a very profitable area for a bank.
With today's reality of near zero return on cash and near cash (and unprecedentedly high levels of liquidity on bank balance sheets), banks are clamoring for the opportunity to make well-structured loans to credit-worthy companies. It is also important to note here that banks aren't in the business of loaning money to unproven ventures - that's generally to be funded by equity of one type or another.
Finally, regulatory pressures tend to be highest in a down economy, so I won't argue that it is easy for either borrowers or bankers.
All said, I would encourage business owners to seek and develop very deep relationships with their banker in the good times, so that when a change in situations comes along, they can lean on that relationship and take comfort that their banker "has their back" during the tough times.
This all comes back to how a business owner and its banker view their relationship: if the business sees the bank as a commodity (likely true in the cases cited in the article when so many expect to issue an RFP for banking services in the near future) as opposed to a value-added relationship, a down economy is almost certain to result in a disconnect between the needs of each party.
Conversely, when the two parties engage in their relationship in a way that works to the benefit of both -- I describe it as a single umbrella under which both parties seek refuge from the economic storms - both getting damp or wet on the periphery, but both staying largely dry -- the mutual needs of each can oftentimes be met as the challenges for both increase.
Changing course a bit, I would strongly disagree with Reuben Daniels' comment cited in the article that banks generally view lending as unprofitable - I can assure you that my 30 years in the business, at a number of institutions both large and small, have been focused on lending (along with the logical other revenue sources) to small and mid-sized businesses because it can be a very profitable area for a bank.
With today's reality of near zero return on cash and near cash (and unprecedentedly high levels of liquidity on bank balance sheets), banks are clamoring for the opportunity to make well-structured loans to credit-worthy companies. It is also important to note here that banks aren't in the business of loaning money to unproven ventures - that's generally to be funded by equity of one type or another.
Finally, regulatory pressures tend to be highest in a down economy, so I won't argue that it is easy for either borrowers or bankers.
All said, I would encourage business owners to seek and develop very deep relationships with their banker in the good times, so that when a change in situations comes along, they can lean on that relationship and take comfort that their banker "has their back" during the tough times.
Bruce
ReplyDeleteVery insightful article! My question to you though is how does a small business (or frankly any business) develop a deep relationship with a banking institution when that relationship centers primarily around a person to person connection - something that does not generally have much in the way of longevity? That has certainly been my enduring frustration over a 30 year period.
It's great to see you out there. I hope things are starting to go well for you in your new venture.
Geoff Kearney
Geoff
ReplyDeleteWell stated on your part - I understand that frustration. I would recommend extending the relationship beyond that of the single banker. Depth on the banking side of the equation should include the relationship banker, his/her boss, the credit officer who has impact on the account, along with treasury and other ancillary resources.
Likewise, depth should be extended on the client side as well - beyond a single point of contact with the entreprenurial owner and his/her CFO/controller.
This is obviously a dynamic relationship that will take time (months and sometimes years) to bloom into greatest effectiveness.
Thanks for your question!
Bruce