Working With Your Banker (August 2011)

Believe it or not, your banker wants to lend you money and wants to see your business grow. That’s how they earn their money. They borrow from depositors and pay them a rate of interest and lend to businesses at a higher rate. At a deeper level, banking is obviously much more complicated but at some level it is very simple (like most businesses).

That said, in order for the bank to make a reasonable return, they have to manage their risk which means adhering to their underwriting guidelines and making reasonable judgments before lending. This is why banks have committees to approve loans.

Often, I find clients telling me that their bank won’t work with them. This usually means that they won’t increase their credit lines. This is usually followed by the comment that the banker “just doesn’t understand our business”. Well, that may or may not be true. The banker probably doesn’t understand your business as well as you. Nor should you expect him to, after all, they first and foremost understand banking. On the other hand, I have at times seen bankers demonstrate a better understanding of a business than the owner.

Generally, however, it is the job of management to help the banker understand the business. Typically, when I hear a complaint about the banker, I ask to see the “write-up” that is sent with the financial statements. Often, I get a blank stare (or silence if we are on a phone call). In addition, it is not uncommon for financial statements to be poorly presented (too much or too little detail, no logical order, poorly formatted, etc.) or simply incomplete (often missing the statement of cash flows or comparisons to year ago or budget). How can the banker represent the company at their lending committee meeting if management is not giving them the tools to do so?

When presenting financial information to your banker, it should be timely, well prepared, include all financial statements (income statement, balance sheet and statement of cash flows) and include comparisons to prior period, year ago, and/or budget as appropriate. It also needs to come with a “management discussion and analysis” which explains how the business is performing. This allows the banker to understand your business and represent you within the bank. It also allows them to do their job better because they can ask better questions about your business since most of the basics will be covered in the memo.

Banks have underwriting guidelines which change from time to time due to market conditions and issues internal to the bank. But guidelines are just that . . . they are not necessarily cast in stone. By providing an explanation of the financial statements management demonstrates that they understand the financial position of the business as well as the bank’s perspective. The better job that management can do of this the more likely that the bank will make an exception to its guidelines if and when it is necessary.

Banks lend to people and therefore the relationship between management and the bank is very important. The better that relationship, the better the bank can help the business. Ultimately, that is what you want from your banker and what your banker wants to provide you as a client.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®

Ken Homza

Copyright @ 2011 Homza Consulting, Inc.

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