The struggle of financing for many small rural businesses is widely felt. There is little joy in the cumbersome process of applying for financing and the nerves and sleepless nights over interactions with current or prospective banks can be haunting.
Having a good relationship with your bank can be a means to drive your business forward. In this article we delve into what a good relationship with your bank should look like, and how it will help to get the best bang for your banking buck.
There are many characteristics that hold together a strong banking relationship as different clients have different needs and expectations, but at the foundation should be a two-way understanding of expectations and needs.
High levels of communication
Frequent contact with open and candid conversation is always important. When a business owner and their banker meet on a regular basis, this provides an avenue for general discussion about current and historical business performance, potential opportunities as well as potential risks that may emerge. Information derived from these discussions is very valuable to a banker, as it enables the banker to pre-position themselves for any needs that a business may have on the horizon.
Informing the bank of large business decisions once they are locked and loaded is not the way to go. Discussing future ambitions for the business with the banker before any transactions are on the table enables them to provide feedback on what would be required for these goals to be achieved in terms of debt servicing, security for the loans, and any risks that need to be mitigated. In turn, a business can use this information to assist in its own due diligence process when examining future opportunities. Ultimately, early engagement will provide a business with clarity around its borrowing power, and it will enable a banker to turn around loan applications more quickly.
Surprises may be the adventure of life, but to the banks they are torment and chaos. All parties in the relationship should work to avoid surprises at any time. Emerging concerns, should be flagged early. As a doctor may say, it’s better to prevent the problem, than treat, so discussing any potential issues early on will enable the bank manager to provide assistance and avoid a crisis.
By the same token, sometimes the bank may identify a potential issue that the client is not aware of. A good bank manager will not gloss over concerns around the business performance or position, but will hold an open discussion identifying any concerns, seek the client’s perspective and input, with the goal of avoiding a material deterioration in the business strength. If this isn’t the case, there is a weakness in the relationship.
Both the client and the bank manager benefit from a strong banking relationship. A bank manager relies on clients, and a business needs a bank, so it’s a symbiotic relationship of co-dependence.
Client benefits of a healthy relationship:
- The client will receive better service
- Have a clearer understating on how the bank looks at their business and its borrowing power.
- Emerging issues will be nipped in the bud, before they escalate
- Opportunities can be pursued with confidence that the required backing is there.
A good bank manager will endeavour to develop strong relationships as it makes their role more enjoyable for the following reasons:
- It makes their work load easier to manage, as forward planning in anticipation of client needs is possible
- Negative client experiences are avoided, as small issues will be identified, managed and addressed before they develop into big issues.
- A bank manager is expected to maintain and grow their business. This is only possible if clients are happy, and relationships are strong.
The agri sector is lucky. It is the only industry sector in which all major banks have specialised staff, departments and divisions from top to bottom. It’s a unique industry which requires a high degree of expertise from financers in order to ensure that the right decisions are made in the best interest of all parties. Whether a business manager deals directly with a bank manager, or works with additional parities such as a broker, a strong relationship, including confidence in expertise and open communication, is critical.