The Wall Street Journal writes often about things to do in running a new or small business. They publish a number of articles. Some of them are full of quotes from the captains of industry. Some of them are basic checklists of what to do when.
I run a small gathering at my law office called “Small Business Anonymous” (“Anonymous”) where business owners gather to discuss issues that are similar to all of business. In Harvard’s Business School, they talk about Widgets. What this group has found is that we are all making widgets, regardless of whether the label on that widget says Apple, IBM, Sony, or Baltimore Tea Company. It doesn’t matter either whether Fed-Ex or UPS delivers that widget or you buy it from the Fisher Law Office or read about it in Ass-Kicking Art on the Internet.
It’s true; some of these widget makers are clients. All are interesting and all are wrestling with the same issues. The great think about being anonymous is you can park your ego at the door and talk about your problems.
Interestingly, we both have been talking about some of the same issues. Key among them has been how to pick a bank.
The Journal writes that choosing a bank for your business involves more than opening a new account at your personal bank or picking the branch office nearest your company. That is true. You need to understand what services you require and how much they cost. Ideally you’ll find a banker who will take the time to walk you through how to solve a problem, so you can go back to running your business.
So let’s start with what kind of bankers are out there. I have found that the Anonymous gang runs into two types — commercial bankers and wealth management bankers. Both are important and both have rolls to play. Both will refer you to the other. Both are interested in having a business relationship with you. And you probably will need both.
But the big thing is that if you are not careful, you may spend more time shopping for a $300 laser printer than you would shopping for a bank.
Here are a few issues to keep in mind when you look for a banker:
– Does your local banker have lending authority? What’s the largest loan he or she can approve without checking with higher ups?
This became a key issue for a client seeking Small Business Administration (“SBA”) financing. This client is jumping out into a new franchise; he sells a good story on what he wants to do and where he is going. He was turned down by two different banks that didn’t like the story, but he sold his story to the third bank based on business pitch to one of the best relationship managers in this area.
Relationship managers at community-based banks or smaller regional banks often have more discretion than those at a unit of a big institution and they may consider small-business lending to be their bread and butter. But lately, the distinctions between “large” and “small” banks have blurred with the industry’s consolidation. Many community banks have undergone mergers that now allow them to offer a wider range of services. (I discussed this client’s loan with a business broker who never believed we would get the loan placed with this bank because the bank was too “large” and thought to not be aggressive enough.) So the story is that banks of all sizes are emphasizing improved customer service, having discovered that many customers still like face-to-face service at branches versus conducting all transactions online.
– The Journal thinks that smaller, regionally focused banks may be better because they know local market conditions. When they make pitches at my office, they certainly stress that. The Journal stresses that it thinks they often provide more one-on-one access to a loan officer and put more emphasis on a borrower’s character rather than just applying a credit-score model. In interviewing people for this post, my friend, Andrew Smith, a business broker for the Morton Group, reports that banks tolerance for risk has so changed in this environment that you can’t be sure what will work and what won’t. His advice is to keep shopping.
– The Wall Street Journal writes that it thinks that rates charged by large financial institutions “are systematically lower” than those charged by community ones. They cite a study cowritten by the National Federation of Independent Business, an advocacy group. They also write that larger banks are more likely to issue corporate credit cards to small businesses, which can be used for financing. Both are key issues that you want to keep an eye on. My Anonymous group only knows that there is no rhyme nor reason to the fees. They aren’t off by much, but reflect changing banking standards on the bank’s tolerance for risk. Specifically, some banks may ask for 10 percent down, some may ask for 15 and others 20 percent. Some may seek specific assets as collateral, others may vary what they ask for.
– I mentioned SBA financing earlier. Is your bank comfortable working with the SBA loan system? A key issue is finding a bank that is on the SBA pre-approved list. In my area, at least five good banks are on that list. BB&T, CommerceFirst, Eagle Bank, M&T and Sandy Spring Bank are the ones I know of. I am sure there are others. It would be one of the first questions I would ask because it will dramatically shorten your loan process. SBA loans are federally subsidized loans that help protect the bank against default, which makes it easier for banks to lend money. SBA loans are available to businesses whose credit histories, cash flows or collateral would be inadequate for them to obtain traditional bank loans, and the SBA typically offers more flexible repayment terms.
– View your banking arrangements as a long-term relationship. Remember, whether you are running this business out of a back bedroom or a huge factory, you need a team of professionals. You want a banker, a lawyer and an accountant that are on a first name basis. You may pay a little bit now for the privilege, but you’ll pay a lot more later for the lack of familiarity.
When your picking your banker, consider not just what you need immediately, but services you may require in 18 to 24 months. You want to find a banker who understands your business and industry, including your creditworthiness and your seasonal borrowing needs. Ideally, your banker will see a customer’s growing business as an opportunity to provide more useful services and will listen if you run into a financial emergency.
Once you’ve established a relationship with a banker, meet with him or her at least twice a year. On the first meeting find out about him or her and how he or she is doing. (Remember, their world is chaotic also.) On the second business, offer an update on your company’s finances on a year-over-year basis. Even then, it’s a good idea to interview branch employees and managers at competing lenders every few years and gauge their willingness to devote time to a single businessperson. Although switching banks can be a hassle, you can let your banker know you’re shopping around.
If you want to read the Wall Street Journal’s discussion, here is the link:
As for Small Business Anonymous, if you’d like to join us, let me know. You can email me at info@thefisherlawoffice.com. If you are not local, we’ll work you in electronically. Or, if you want, just sign up to follow the blog and we’ll be in touch with details.
As always, good luck and good hunting.
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The Fisher Law Office is a law firm where the attorneys provide planning for Estate Planning, Estate Administration, Elder Law, Trusts and Wealth Planning, for its estate planning clients. The Fisher Law Office attorneys provide business to business services by providing advice about Business Law, Succession Planning, Exit Planning, Asset Protection, Estate Tax, Gift Tax and Security Clearance advice to businesses and individual clients in Annapolis, Arnold, Pasadena, Bowie, Glen Burnie, Severna Park, Edgewater, Baltimore, Columbia, Stevensville, Chestertown, Dunkirk, St. Mary’s City, Washington, D.C., BWI Airport, Anne Arundel County, Prince George’s County, Queen Anne County, Harford County, Talbot County, Calvert County, Baltimore County, Baltimore City. The Fisher Law Office Attorneys are members of Wealth Counsel and founding members of Advisors Forum, national groups of interdisciplinary trained attorneys, financial planners and accountants trained in the best techniques to provide the most effective Estate Planning, Wealth Planning, Business Law, Succession Planning, Exit Planning advice to businesses and individuals. The Fisher Law Office is AV-rated by Martindale-Hubbell. We can be reached by email at info@thefisherlawoffice.com or on the web at http://www.thefisherlawoffice.com.