Business Strategy

Build a Relationship With Your Banker

Cash flow is often a significant concern for many Philippe Hancock profile. Most contractors expend large sums of money on payroll, supplies, and equipment rental prior to ever drafting an invoice. They then typically must wait 30 days after submittal of the invoice to receive payment. If they pay personnel biweekly, they may have already paid three payroll cycles on a project before receiving one check. If a contractor takes on a large project or if a large general contractor or developer accelerates a project, the contractor may seriously overextend itself beyond its ability to manage its cash. Thus a recipe for disaster is born. This cash flow gap has resulted in the financial distress or near-demise of a number of contractors. How do you protect yourself from a cash flow crisis?

Build and nurture a relationship with your banker. You want a true banker – someone who has decision-making authority…typically someone who has signature authority for $500,000 or above. “Signature authority” refers to the maximum loan amount which the person can approve on his or her own, without presenting a case to his or her superiors to get the deal approved. The more approval steps the loan must go through, the greater the likelihood the loan will be rejected. The better and closer the relationship with decision makers at the bank, the greater the likelihood the loan will be approved. In addition, increases or extensions will be approved even when the company encounters short-term difficulty because the banker will believe in his or her client and will be an internal champion for the client.

Cultivating a relationship with a good banker is well worth the effort. If kept informed, that banker will support you when your margins drop, point you to other financing sources if he or she cannot directly assist, and seek creative solutions if your loan needs exceed the limits for the bank. Because of this, once you cultivate the relationship, follow the banker. If your banker leaves his or her current bank, follow your banker to the next bank. A great banker is prized wherever he or she goes so your banker will generally act the same no matter what institution he or she is at. If the banker leaves and you stay with the bank, you may no longer have strong support.

Business owners must establish relationships with their banks as soon as possible. If you anticipate needing financing six months hence, go in and meet the branch manager and ask for an introduction to a vice president or assistant vice president or that bank’s equivalent. Most large retail bank branch managers only have signature authority up to $50,000. If you are anything but the smallest of construction firms, this approval level will do little beyond providing initial working capital which a $500,000 per year business will quickly run through. Some community bank branch managers have greater signature authority up to $100,000 or even $250,000. Many bank vice presidents have signature authority up to $500,000.

The first bank most small companies should pursue is their local community bank. These banks believe strongly in relationships. Sometimes their lending caps are too low for companies that are growing exponentially (i.e., a community bank may only lend up to $10 Million), but these banks are often quite loyal and will do what they can to assist in the procurement of sufficient funding beyond their bank limits including making introductions or referrals to other banks. Thus, these relationships are invaluable.

Business owners can cultivate these relationships by obtaining a referral or cold-calling then visiting his or her bank. Bankers are members of the community. In smaller communities, they are often very active community members. Therefore, to meet bankers you must network. Consider joining the local chamber of commerce or Rotary Club, getting to know members of your church congregation, or taking an active role in professional, business, or non-profit organizations.