January 15, 2014

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Banking and Finance

January 15, 2014

Talk to the readers for just a moment. Suppose you’re a CEO of one of our fast-growing businesses, or you’re a commercial real estate developer, or you’re just a consumer trying to get consumer loans. What would you tell them?

BEARD: You know, the more things change, the more they remain the same. It’s really the same old stuff that’s always been there. Get to know your banker. Be honest with them. Look at them as a financial partner in the sense of trying to get them to understand your business and you understand theirs, and then listen. And between the two of you, craft the financial instrument that makes sense to grow your business.

The integrity part of it is always a given. It’s downplayed particularly, in my view, because it doesn’t fit on a balance sheet anywhere, but it’s a key issue. As a banker, if you know the person and you know that they’ve been honest, and you have a good understanding of where they’re headed, you’re much more likely to loan to them.

Anybody that wants to have a good banking relationship needs to spend some effort on it just like they would on marketing or developing any manufacturing business. Banking and capital are essential to the growth of your business, and you better spend some time and effort doing that

Say there is one of those fast-growing companies. They’re coming off of five years of losses because it’s been a startup, and now they’re generating significant cash flow, but their balance sheet looks ugly. And they know how to keep balance sheets. They’re very careful in that documentation, but their balance sheet looks ugly. What would you advise them to help with the problem?

BEARD: There are a number of issues that are probably too much to discuss here, but there are different buckets of money, and if they’re in a VC bucket, they’re not going to get it from a bank. They just aren’t. If they’re past that and their burn rate is over and they’re now back in the black and starting to earn, they’re going to be bankable. The issue is how do they tell that story and what risk is the bank taking? Because VC money is very differently priced than bank money.

CAMARELLA: And regulated.

BEARD: So you have to shop in the right place. That would a great time to go into a bank and say, “Look, we understand the difference between VC money and bank money, but we now want to establish a line of credit. We don’t need a gazillion dollars. We need some modest amount. We’re going to show that we know how to grow that and handle that. And as we do that, you’re going to see that we understand our business and our financials.”

CAMARELLA: Banking relationships for business owners are not a commodity. And if it’s looked at as a commodity in terms of just shopping a bank each year to get the lowest rate, then that’s what you will get. Basically you’ll get what you pay for. A lot of business owners don’t shop their attorney every year, and they don’t shop their CPA out every year. But we still have some smaller, growing companies who will shop out a bank. And if they’re looking for a change, it’s still based upon the rate.  They’re buying loans, and they don’t care about the relationship. So that’s their strategy. That may work for some, but the true value in the long term is by acquiring relationships, and there are times when you walk away from a business. If a business doesn’t want that, it may not be the right fit for you.

How do they build a relationship? Just call you once a month?

CAMARELLA: One of the things that we do with our business owners is understand what they want from us. How often do you want to see us, and in what form? In some cases it’s e-mail, it’s phone, it’s in person. Creating a relationship is hard in this environment because, with the younger generation, we don’t see the career bankers that are in the same position for years at a time. It puts more pressure on the banks. What we try to do as a bank is a team approach so that there are multiple players involved that know the company.

HOWELL: I think the banker has a responsibility to reach out and make/build a relationship with your business. If people don’t feel like they have that relationship, then something’s the matter. A good banker is a relationship banker. They’re going to understand their business. They’re going to say, “What can we do to help you?” They’re going to bring new ideas and new thoughts and new services that he hadn’t thought of. Not just pushing the latest product that came out yesterday, but they’re going to really help that business. And that’s what good bankers should be doing to help grow this economy.

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