What do you think of when you hear the word bank? The thought probably has nothing to do with anything enjoyable. If you were to ask any business professional the first word that comes to mind, it would most likely be a provider of debt or money. When I hear the word bank, I think of vendor. I wish I could see the jaws drop on the people reading this excerpt. A vendor? What is this guy talking about? Before you drop my idea all together let me explain what I mean when I say: Your bank could probably become your best vendor.
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Every business owner deals with vendors on a daily basis. The better vendors in the industry will not only provide goods or services to your business, but will also provide you with technical assistance or expertise in their field. This is how you should view your "money vendor." Which bank provides you with the best service and technical support around? Here are some thoughts when choosing your next money vendor.
Size. There are huge banks, big banks, regional banks and local banks. Most of your local banks are focused on the local community and are limited to the amount of money they can lend to any one customer. Some have some very seasoned lenders who can be very helpful in providing technical advise. The larger banks have the traditional type of lenders, but can also have specialists for specific industries. If you need $25 million or more in financing, you will need a regional or larger bank. Most large banks are also training grounds for younger lenders, which means it may take some work to find a more seasoned technical assistant.
Rates. Although you might think that all banks are created equal, they are not. You might think that the big bank with huge deposits can give you the best rate, which is sometimes "true." You might think that the smaller bank with smaller deposits would charge a higher rate, which is sometimes "not true." Rates are based mostly on: 1) the historic financial performance of your company: free cash flow, debt to worth ratio, debt service ability, current ratio, collateral value and the advance rates on current assets (accounts receivable and inventory) and 2) how aggressive the bank is looking for loans. The biggest earning asset the bank has is its loans. So, if their loans are down, the bank can be more aggressive in funding new borrowers. This increases their outstanding loans so they can earn more money.
Loan Specialty. Many banks have developed a comfort or specialty for certain types of business loans. Some banks understand real estate very well and would rather not make an equipment or inventory loan. In those types of situations, if you need a piece of equipment or inventory financed and you have real estate that can be leveraged, you can probably get the loan you need. Some banks would rather do short term financing and use your accounts receivable as collateral. Others really specialize in consumer financing (cars, boats, home equity lines of credit, etc.), but they don't tell you that in their literature. It is much easier to obtain financing from a lender who understands your business, likes your collateral, and your proposed financing strategy, than one who disregards your needs to fit their portfolio requirements.
Relationship. Probably the most important factor in finding a good money vendor is finding a banking officer that is relationship orientated and technically competent. Most seasoned bankers have a wealth of experience and can give you valuable insight into your business, from a non-biased, financial point of view. Invite them out to your business, take them to lunch, and make them your friend. There are hundreds of banks and thousands of bankers. You can find one that has the expertise and interest in your business. It just might take a little work; but it is well worth it.
The Bottom Line. Focus on the relationship factor first and then work backwards. The work you put into picking your "money vendor" in the front end will pay you large dividends in the back end.
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