What to Look for in a Banker

A serious entrepreneur is constantly in the process of evaluating new opportunities. Therefore, capital is an ever-present need. The selection of a good bank is paramount to future success. If you want a lot of mail, send a questionnaire to entrepreneurs asking them to grade their bank and make suggestions for improvement. 

An adversarial relationship frequently exists between bankers and entrepreneurs. The entrepreneur sees the banker as a stuff- shirted, non-risking person with a big desk and no guts. The banker, on the other hand, has seen too many inexperienced, pie-in-the-sky hopefuls who don't know a business plan from a frying pan. 

Many years ago someone told me, only partially in jest, that a bank was a good place to get money if you didn't need it. While that perspective is "on the money," it is unfair to the many bankers who have supported entrepreneurs (this one included) when they believed in the person and the idea. 

Building a solid relationship with a bank is possible, even in the initial phase. But don't establish a relationship with just any bank. You want the best. Your choice is crucial to your success. 

Terry Schulte is one of the most successful new car dealers in the Midwest. While discussing employee turnover, I asked him about the stability of his automotive sales force. His answer was, "My goal is to have a lower level of turnover at my dealership than my bank has among the loan officers it assigns to me." 

Loan officer turnover is an important consideration. Twenty years ago I began a commercial banking relationship, and my loan officer is still with the same bank in the same town. He understands me and I understand him. Our relationship's continuity has been critically important to my achievement. He once told me that when I wanted to do something badly enough I would get it done. His opportunity to watch me, and me him, has been a mutual benefit. Find out about the bank's loan officer turnover. If it's high, go somewhere else. 

When looking for a banking partner, prepare to ask pertinent questions. The answers will not only provide valuable information, they will also serve to let the banker know you've done your homework and take this decision seriously. 

You don't want the bank to interview you. Remember–you're the customer. Interview the banker. View the bank as a potential supplier, in this case of money and financial services. 

Here are some questions every serious entrepreneur should ask a potential banker: 

1. What do you know about my business? Educating them is not your job. 
2. What experiences have you had with entrepreneurs? Listen closely. You should learn both the scope and quality of their experience and how that has molded their current attitude toward entrepreneurs. 
3. Tell me about the entrepreneurs you have on your Board of Directors? You'll probably hear the names of corporate presidents who control large deposits. However, if they speak of two or three entrepreneurial achievers they helped in their initial years, you have a clue that you may be important to them. Banks who seriously want to cultivate business with entrepreneurial thinkers find ways to interact with them, to learn from their side of the fence. Board membership is one way entrepreneurial banks accomplish this. 
4. Who makes your loan decisions? The closer the decisions are made to the customer, the better. If it's a chain bank and too many decisions are made at the regional or national office, forget it. They won't be able or willing to factor in the quality of the individual. Both their loan decisions and your relationship with them will be impersonal. You'll get lost. 
5. How long do loan decisions take? Banks sometimes take three weeks to make decisions that need only three days–or three hours. Learn about their decision-making process. Ask about the dollar limits on local decisions. Entrepreneurs are somewhat impatient while banks are committee-oriented. This varying sense of urgency can cause conflict. Deal with it early. 
6. Have you had any difficulties with your bank examiners in the last five years? This might appear an unusual question, but it's highly pertinent. When regulators get nervous, the bank does, too. It impacts the customer. The bank reevaluates customer credits, loan parameters can suddenly change, and the bank may accelerate the frequency of their requests for financial statements. Avoid a bank with these problems, or their problems will become yours. 
7. How frequently do you require financial statements, and what do you want to see? Your bank has every right to monitor your business closely, perhaps quarterly for the first year or two, or longer if there are serious concerns. However, the requirements for successful businesses should drop to semi-annually or annually under most conditions. American enterprise is shortsighted, an ailment caused in part by shortsighted banking policies. Successful businesses need flexibility to play out their vision without someone looking over their shoulders wondering how profits look this month.
8. Inquire about their credit-scoring software. Spreadsheets now analyze customers. Most banks will share information on their particular methods so you can gain knowledge of what financial information they look at and its degree of importance. 
9. Understand their service charges. Bank service charges are increasing, but not all banks are increasing them at the same rate. Compare the charges from bank to bank and understand why they require them. This alone could save you tens of thousands of dollars over time. 

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Bankers have a habit entrepreneurial achievers should be aware of. Every individual and institution has two methods of decision making–rationally and emotionally. Observing banker's habits convinced me of one absolute: they're highly emotional lenders. It's a habit anyone growing a business should be aware of. 

Almost everything has a cycle, be it a business, a marriage, interest rates, or the economy. An expansion has followed every recession in history. Every one! And at least a slight recession follows every expansion. Which begs the question: Why do banks insist on opening the lending faucets toward the top of the business cycle and closing them at the bottom? Because they're emotional. 

The August 24, 1990, edition of the Wall Street Journal discussed banking industry emotionalism. The article concerned a real estate credit squeeze in Nashville. John Clay, CEO of Nashville's Third National Bank, didn't minimize the real estate debacle or the role area banks played in it when he said, "The banks have been running all over each other to make deals. It's time to pay the piper." Another Nashville bank official, Neil Cunningham of First American Corporation, said there was "an unspoken wave of caution" pervading his bank. "You're dealing with human emotion," Cunningham concluded. 

I was raised as the eldest of six children on an Iowa farm, an area that has some of America's prime farmland. The value of an acre of land at the cyclical peak in 1980 was about $3,500. Five years later the value of the same acre was less than $1,200. 

If, at the 1980 peak, the farm I grew up on had sold at $3,500 an acre, virtually every banker in the county would have chased the buyer down Main Street to make the loan. Yet had the farm sold five years later to the same buyer at the cyclical bottom of $1,200, every bank in the county would have been highly skeptical of the loan and buyer financing would have been difficult to obtain. Same land. Same buyer. Yet financing becomes more difficult at $1,200 an acre than at $3,500. Pretty ridiculous, but true. And it's because bankers too often feel with their emotions rather than think with their brain. In this example, they were wrong twice. 

You will benefit from understanding this unique banking mentality when looking for credit. The scarcity of funds at the bottom of an economic cycle makes development or expansion of a business even more frustrating for someone who understands cyclicality and wants to invest at the bottom. 

If bankers would adopt Wall Street's buy low, sell high theory they would make more money. So would their customers. And both bankers and borrowers would get into less trouble.