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NEWS: 4/10/12

4/10/12 – Eight Simple Rules for Establishing a Strong Banking Relationship

1. On a regular basis, when your monthly, quarterly, or annual results are computed, give a copy to your banker. Use the opportunity to explain where you are going financially, and how you are performing according to your objectives.

2. Familiarize your bank with your industry and product line, for every industry has its own uniqueness as well as its particular cycles and seasons. Since you can't expect your banker to know every industry, it takes time for your banker to become familiar with the habits of your company and its specialty.

3. Use facts and real numbers in dealing with your bank; not generalities. Your bank wants to know the real earning power of your company, its ability to service, and repay a loan, and of course the collateral value underlying your assets to support your loan request. Since most banks are "performance oriented", they like historical results to make projections from. Bankers, likewise, measure assets and cash flow to calculate the coverage, both to carry and repay the debt. A frequently overlooked point is that a bank doesn't want to lend money to cure a temporary problem without some insight into the longer term effect of the money to be loaned to your company. A key question a bank has to ask is "If we lend you x dollars today, will that be sufficient for your company's future"?

4. Before you make a request, put yourself in the banker's shoes by asking "Is my request reasonable? Does it make sense? Do I have the standards that the bank requires"? A corollary: Don't waste time going to a bank that does not service your particular industry.

5. Get to know more than one loan officer at your bank since bankers do move to other branches and other institutions. You may not have the time to educate your banker's replacement when you badly need money.

6. Don't be misled into falsely thinking you have a "deal" just because your banker says he or she is interested in your company's financial needs. Instead, get your banker to express that interest concretely with a detailed proposal, covering the amount, terms, covenants and rates so you won't be surprised (stunned) by the bank's conditions at zero hour.

7. Be aware, "everything" is negotiable; from interest rates to deposit requirements down to the last financial covenant. Like a car salesman trying to sell you every available option, a bank is primarily looking out for its own interests.

8. Be aware, also, other banks and commercial lenders may offer a loan if you become disenchanted with your bank or if they turn you down for a loan. Just because you got a loan once does not mean you will get it a second time from the same bank. Bankers generally like to loan money only to "qualified " borrowers, which means it's always tougher to get money in bad times. Finally, treat your bank just like you do your important customers, "Over communicate – in good and bad times".

"If I accept you as you are, I will make you worse; however if I treat you as though you are what you are capable of becoming, I help you become that"

- Johann Wolfgang von Goethe