A healthy banking relationship is an essential building block for a successful small business and that's why entrepreneurs have to know how to nurture strong ties with financial institutions.
Whether a company is seeking first-time financing or is an established client, the key to creating a strong, trusting banking relationship is communication.
"The goal is to create an atmosphere of open communication between an entrepreneur and the bank," said André Bourdeau, Executive Vice President, Financial Services and Consulting Group at the Business Development Bank of Canada (BDC).
"All entrepreneurs have ambitions. They want to seize business opportunities and grow their companies. So it's important to establish a good reputation with the bank as a entrepreneur and a good manager."
A bank is in the business of lending money, but it's also focused on managing the risk it's assuming in financing a small and medium-sized business. That means the banker will analyze the merits of a company's product or service, its financial strength and the experience and expertise of management.
The key tool in providing this information is a detailed, well-researched business plan that lays out financial, market and operational information. Once the bank has provided financing to a company, it will want periodic updates on the firm's financial status, projects and goals.
But the relationship shouldn't stop there.
Establishing a personal rapport and a good reputation with bankers can be an important – if hard to measure – factor when it comes time to ask for increased financing, improved terms or a reduction in service charges.
Entrepreneurs should resist that urge to hide problems from their bankers, Bourdeau said. That's when a history of good communication and positive perceptions about an entrepreneur's abilities can persuade a bank to be patient.
"No one, including bankers, likes bad surprises," Bourdeau said. "It's better to take a proactive approach and show your banker you're in control of the situation and taking action to correct the problem."
He recommends a company try to establish relationships with at least two people in a branch given the high rate of turnover in many banking positions. And he cautioned companies not to be too quick to change banks to save a few basis points of interest.
"If you work for several years with contacts at the same institution, it's clear that you will get the benefit of the doubt."
Kris Depencier, Head of Small Business at RBC Royal Bank, said strong relationships with bank-branch personnel can help businesses quickly handle day-to-day business problems such as stop-payments or NSF cheques.
Good relationships can also pay off because branch staff often have valuable information and advice to pass along to business owners. They may even be able to provide quicker turnaround times on requests simply because they know the business and can help connect you with the right person, Depencier said.
She recommended that entrepreneurs make time for periodic meetings with their bank to exchange information about their company and the bank's services even if there's no request for credit on the table.
"It's almost like a check-up – a time for making sure my banking is set up the best it can be for my business," she said. "There's huge value in having an ongoing exchange around the business."
Dale Willard, president of fast-growing ham processor Midtown Meats Ltd. of Wellington, Ont., said he puts a high value on a good working relationship with his banks. Nurturing and maintaining a strong relationship is profitable for both sides as the business grows, he said.
"There's a trust factor," said Willard, who is also president of Canadian Blast Freezers Ltd. of Trenton, Ont. He deals with the BDC and another major bank.
"When you have a good working relationship and an account manager who gives you attention and understands your business, then there's opportunity to grow."
For more information, call 1 877 BDC-BANX (232-2269).
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