Essentials to understand when working with a bank

I have had several businesses and worked with many banks over the years. I’ve always tried to see my banker as a business partner. We had the same interests. The bank wanted to see our businesses grow and prosper because if they did, they would have use of the money circulating in our accounts and they would also have a good lending customer.

Two essential things you need to understand about banks. First, they want to lend you money. This is how they make their money. Their goal is not to reject you.

Second, you have to pay them back. Banks cannot afford to take significant risks because the margin they make on lending money is simply too low. For just a few percentage points difference between what they charge a client and what they pay for the money they lend, they have to cover all of their overhead – including salaries, facilities, insurance , IT, marketing – and make a profit.

There is little or no room for loans that go unpaid. For every loan that goes bad, they need 50 to 100 that go right. If you think about this, it’s not hard to see why banks aren’t in a position to take so much risk.

This brings me to my third point. Banks don’t care much about your business plan, especially when borrowing money from them. They want the assets to back the loan and they need the income that will allow you to make the payments. And you better have a great credit rating and be prepared to personally guarantee any business loans you take out, especially early in the life of your business.

It should also be noted that banking is a heavily regulated industry. Lenders have little discretion over what they can and cannot do. They have some control, and it helps that they want to help you. And I’ve found over the years that a local/regional bank where you can have real relationships with people is much better than a big national bank where you’re just a number.

Marc Zweig

Because I know the managers of several of our local banks, they have stepped in when we needed them, more than once.

Although I always have a favorite bank that I would go to first for all my needs, it might make sense to do business with more than one bank. Banks are sold, loan officers change, and periodically banks can end up with too many loans, especially if you are in real estate. A second loan source might be worth having.

The important thing is to make sure that all the banks you work with are aware of what you are doing with other banks so that they have a complete picture of your financial situation.

Finally, banks do not like surprises. I learned years ago that regularly sharing your numbers with your banker helps build trust. Keep them informed about your business progress, good or bad. Show them that you’re not hiding anything from them, and they’ll be more likely to help you out when you want to take advantage of an opportunity that comes your way or deal with any crisis that has arisen.

Once again, we are fortunate to be here in northwest Arkansas, where we have a long list of major banks. A strong local banking network is crucial to our economy, and without them we would not enjoy the boom times we are experiencing today.

Mark Zweig is the founder of two Inc. 500/5000 companies based in Fayetteville. He is also an entrepreneur-in-residence and teaches entrepreneurship at the Sam M. Walton College of Business at the University of Arkansas, and group president for the Northwest Arkansas chapter of Vistage International. The opinions expressed are those of the author.

Shawanda H. Saldana