If your business requires financing in order to survive, then “relationship” needs to be the No. 1 word in your vocabulary during discussions with your banker.
As the chairman and CEO of North Jersey Community Bank, I can tell you that having a relationship with your bank WILL make a difference. Let’s first take a look at some of the trends that have been taking place in our “new normal” banking environment: *The “too big to fail” banks have found they no longer need to take any risk in making loans, and instead are making enormous profits by borrowing for near 0% from our own government. They then turn around and invest those same funds into risk-free Treasury securities, indiscriminately reducing lending across all segments of business. They have now become “too big to serve."
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*National banks make lending decisions based on models that typically do not account for individual achievement or success, but rather computer-generated forecasts on the profitability, or unprofitability of a sector. The same banks, who offered express loans with no documentation, are the ones who shut off credit once the economic crises ensued.
*Most banks have decided to raise fees on ordinary products as their balance sheets are shrinking due to less loan demand.
*In response to increased regulatory pressure, some banks have even reduced lending to worthy borrowers, simply because the loan may not be in an asset class that is popular with regulators.
However, the above-said does not represent all banks. There are a number of banks that have clean balance sheets and continue to lend in this environment. For the most successful banks however, there is a catch: You need to be a client.
Banks that are willing to lend will be looking at the following:
Is this a transaction, or is this the beginning of a relationship?
It is very important to be able to demonstrate that this is not just about a loan. Banks seek and need to maintain a balanced structure. Therefore, describing your account balances, and other accounts and services, will be equally important to your banker. For us, it is not necessarily the amount of the deposits, but the commitment shown by the diversity and the breadth of the accounts.
Have you spent the time to properly prepare your business to demonstrate your ability to borrow?
Ill-conceived or improperly developed plans will turn off a banker faster than anything. It’s important to:
Have good, solid financial information ready
*Have a clear description of what your company does and how it makes money*Be proactive. Have your financial statements and tax returns ready and up to date.
Nothing impresses me more than a completely thought out and well-prepared financial package that has been voluntarily submitted. What else can you bring to the table to help enhance your position with your banker?
*Will you be a referral source?*Are you involved in the community?*Are you marketing yourself and your business? Like everything else in life, it is imperative to put yourself in the best light possible.
Now is the time to step back, and ask these simple but tough questions before your business is affected. Don't wait until there is an issue; the smart entrepreneur is the proactive one.
Frank Sorrentino III is founder, chairman and CEO of North Jersey Community Bank (NJCB), the fastest growing bank in New Jersey. NJCB has seven full-service branches in Bergen and Hudson counties and is headquartered in Englewood Cliffs. For additional information, call (201) 816-8900 or visit www.njcb.com. Check out Frank’s blog at www.bankingonmainstreet.com