Outgrowing your bank
Neil Berdiev, managing partner, DNB Advisory
Earlier in my commercial banking career, I came upon the customer files of a small company launched as a startup more than 50 years ago. Today, it is a well-known technology company. My bank had financed some of its startup costs. However, within just a couple of years, the financing needs of that company increased to millions of dollars, and the bank was no longer able to support its growth.
Many growing companies will run into this problem. While it is great news that your business is fast-growing, you need to invest time and effort in finding a new commercial bank to which to move your relationship (which typically includes loans, cash management, foreign exchange, trade and other services).
If your total borrowing relationship with one commercial bank approaches its lending limit, your relationship manager will likely alert you early to explore options. You do not necessarily have to go somewhere else. An alternative could be a loan participation. If my customer wants a $10 million credit package and if we are only able to lend up to $7 million, we may consider inviting another lender for the remaining $3 million. We get to keep a valuable client, and you are still serviced by the same bank, while the other lender essentially acts in a shadow capacity.
If your current lender is unable or unwilling to arrange a loan participation with another lender, it is time to move on. Large banks will simply move you to another group within that bank that handles larger credits. This doesn't mean you should not work with smaller commercial banks. On average, they pay more attention and provide better service to smaller companies (mind you, on average!).
Before you look for a new lender, you need to know what questions to ask to avoid having to repeat the process sooner than you have to.
First, find out up to what total loan size your prospective lender is able to do business, so that that your loan needs will not hit another ceiling any time soon, especially if you are anticipating a wave of near-term growth.
Second, evaluate what products and services your business uses or may need in the near future. Look beyond just the credit side of your relationship to the entire suite of services.
Third, analyze product offerings at prospective service providers. How do they compare with what you currently have? Brochures, information on websites and even pitch books can be quite confusing and not provide all the details, making it difficult to compare services. Use this to test the quality of prospective lenders' customer service and their knowledge base. If they are not able to simplify things for you, learn about your real needs and educate you on solutions, think twice.
Finally, talk to your customers, suppliers and business partners. You will build a list of commercial banks to pursue and others to avoid. Ask those referrers why they recommend a particular bank. Don't just switch because your accountant or attorney tells you to – ask why, do your research and ask for more than one name.
The natural reaction of many small to mid-size business owners is to find a commercial bank as soon as possible with minimum time and research, at the lowest price. You should invest the time to explore your options. Moving your business relationship is a very time-consuming and frequently disruptive process. You can't afford to make a mistake and move your relationship again because you have made a hasty, unsubstantiated decision. n
Neil Berdiev is a commercial banker with close to 20 years in the industry. He is a managing partner at DNB Advisory LLC (www.dnbAdvisory.com), an advisory and training & development firm.
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