In discussions today about how businesses are handling the credit crunch, we hear about struggles that companies have with their banks. But I wondered whether smart companies were also thinking of strategies for managing their risk with lenders. Wouldn’t it be smart to spread your business’s banking around, having accounts at more than one bank? I took my question to someone who’s written the book on small business banking.
Kate Lister wrote (OK, she cowrote) Finding Money: The Small Business Guide to Financing, which these days you can get as a handy e-book download at her site, Finding Money Advice. Lister spent more than a decade as a small business lender and has started, grown, and sold several businesses of her own; so she knows the business money chase from both sides of the table.
My question to her: Since many banks, particularly smaller, community banks, tend to lend to existing customers, a company that spreads its banking around would be a customer at more banks. So that should help, right?
Not so fast, Lister says. “Most of the lending I’ve done is businesses up to $20 million in revenue,” she says. “Right up to that level, you’re better off having a relationship with one bank. You’re too thin to spread it around.”
But as your business surpasses that revenue level, it would be savvy to have accounts at more than one bank, say, a credit line at one bank and your checking and savings accounts at another. Then you’ve got two good starting points when you go looking for a bank loan.
One thing you can do to spread your banking relationships around as a smaller business, Lister says, is to have your personal accounts at a different bank than your business accounts. That gives you one more place where they at least know a little bit about you. Also, many small-business loans involve the owner personally guaranteeing the loan anyway; so those personal accounts would come into play.
Another strategy she suggests is to let other banks court you. The president of another community bank might want to take you to lunch sometime. If so, Lister says, go right ahead and eat. Then you’ve made a connection, even though your accounts are elsewhere. If you get turned down at your business’s bank, you could turn to the bank that’s after your business and make it your next stop.
A lot of business owners are out doing in-person networking, trying to build their business. If you meet a banker, be friendly, even if you’re happy where you are. It could pay off down the road.