Treat your banker as a partner in helping you reach your goals.

Help them get to know you and your company, business cycles, etc. Invite them to tour your facilities and meet your team. When your bank understands your business model and knows the key management team members (e.g., CEO, COO and CFO), they tend to have more confidence in you and your team, which strengthens your relationship.

Do not view your bank as an adversary or as a party standing in the way of your business plans. Developing a relationship of trust and honest communication will go a long way with your bank.

Try to utilize key bank services such as a lockbox and depository accounts. The larger your relationship with your bank, the more attention you are likely to get from your relationship manager.


Communicate with your banker regularly.

It is important to provide your relationship manager with financial statements on a quarterly basis at minimum. Meeting with your banker to review your results and providing a management discussion and analysis section with your statements will enhance the bank’s confidence in your ability to manage your business. You also need to communicate the bad information as well as the good information. Your willingness to share all relevant information will enhance your credibility and ultimately create trust. In addition, the more time you can give a bank to react to bad information, the more likely they are to work with your company to resolve the problem.

Maintaining and sharing a rolling 12-month P&L, balance sheet and cash-flow forecast with your banker are also important. This activity not only keeps you aware of your current risks, growth and capital needs, but it also allows you to be proactive with your bank when requesting additional financing. The forecast should include key drivers and assumptions such as DSO (days sales outstanding), inventory turnover, gross margin analysis by product and service, and detailed revenue projections. It is also critical that the forecasts that you provide to your bank be achievable. There generally is a propensity to submit unrealistic forecasts with an assumption that those forecasts may enhance the company’s ability to get a loan and to potentially reduce the cost of the loan. However, those forecasts will be used to set loan covenants that the company may not be able to comply with.

Monitor and stay compliant with your loan agreement. Violations of bank covenants are a serious problem, particularly if you just started a new relationship. One of the worst situations that can happen to your company is to have your bank call your debt, leaving you scrambling to find new financing, which is likely to be difficult.


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Get to know others in the bank that will be involved in the credit decision.

Bankers do not think and operate like equity investors. They have a much lower tolerance for risk; some of this is attributable to the regulatory environment in which they operate, but it is also because the most that the bank can expect to earn by lending you funds is interest less their cost of funds and operating costs. Yields on commercial loans clearly do not have the same potential as equity investments. When you understand the banking environment, you can understand their requirements for secondary sources of repayment, collateral and/or personal guarantees.

Getting to know the underwriters in the bank will enhance your understanding of how the bank makes its credit decision. This will allow you to evaluate both your financial position and how much credit your business is likely to receive. This will also help you address questions or concerns that your bank may have during the credit decision process.


Keep internally generated working capital in the business.

Banks want to help their clients successfully grow their businesses. They like business owners that roll internally generated capital back into the business. When owners make large distributions and do not reduce short-term debt, this will become a significant concern for your bank. Most banks will have tangible net-worth requirements that require you to keep a specific level of capital in the business. Do not draw below this level, and ideally keep an amount of cushion above the requirement. Use your financial-statement forecasts to predict your capital levels. Again, staying proactive will help you avoid crisis and navigate through down cycles.