It seems obvious that choosing a bank for your business should be based on more than which branch office is located nearest your company or who serves the best coffee and cookies in the waiting area. Yet, such trivial niceties are often enough to tempt even savvy business professionals into making a hasty decision on choosing a bank without shopping around. Some business professionals will spend more time shopping for a $300 laser printer than they will for a loan that is 100 or even 1,000 times that amount.
Choosing a bank or switching banks can seem like a daunting task. Some business owners would rather have a dental procedure without Novocain than think about switching banks. Here are a few tips to make your shopping for a bank a little more enjoyable.
Who will be your contact person? Who will have ultimate lending authority? Is it the local relationship manager or someone sitting in a cubicle crunching numbers in another region or state? Relationship managers at community-based 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.
What is the largest loan the bank can approve? You want to make sure that your bank can take care of today’s lending needs as well as your financing needs in the future as your company grows. But don’t assume a local, smaller bank cannot handle your needs. Many local banks will work together and participate in some larger loan requests.
What are the main criteria for underwriting loans? Does the lender value cash flow more than collateral? Do they use a cut-and-dried credit score model? Smaller, regionally-focused banks may be better because they know local market conditions. 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.
Is your bank comfortable working with the U.S. Small Business Administration (SBA) loan system? Federally subsidized loans 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.
What other services does the bank offer? Services such as online banking and remote deposit capture may be of importance to you. As you review the list of services each bank offers, think long-term: Are there any services you may not need now, but you will in the next three to five years? But keep in mind that banking is a competitive business, and it rarely takes more than a year for a new product or service to be copied by banks across the country. So trust and being comfortable with a bank can sometimes be more important than a seemingly new product.
So in summary, you want to find a bank/banker who understands your business and industry, including your creditworthiness and your seasonal borrowing needs. Once you’ve established a relationship with a banker, meet with him or her at least once a year and offer an update on your company’s finances. 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.
Jim Lyle is Vice President of Sales at Community Bank. Community Bank is a locally owned, independent bank that offers comprehensive financial services to regional businesses and residents. Mr. Lyle is located in Community Bank’s Washington Business Center office and can be reached at (724) 223-8311.