A company’s finances are only as strong as its banking relationships. A great banking relationship increases business value by giving a company the flexibility to use cash when it most needs it. The worst time to ask for money, of course, is when you need it. You should sit down with your bankers monthly to tell them how great you’re doing. You probably learned somewhere along the line that it is never a good idea to surprise your boss. Bankers are similar – they don’t like surprises either. If they feel they understand the rhythm of your business, bankers are enticed to come to you with better deals, increase your credit line, and give you banking covenants you can work with.
Midmarket execs must have a good understanding of exactly what covenants your bank has imposed on you, how they work and what they cost. Armed with this knowledge, execs can keep their part of the deal and find mistakes, oversights and any changes the bank might drop in overnight.
We’ve recently heard of a string of debt and revolving credit line covenant changes when smaller, regional banks were acquired by larger banks. Many times, the local banker’s hands are tied, but these changes do happen and can cost you money and misery.
A few things to keep in mind as you manage your banking relationship.
1. Read any agreements you have with the bank.
2. Meet with the bank (work on developing a personal relationship) and discuss all your current covenants, their meaning, how they are calculated and ramifications should you default on a covenant.
3. Establish a meeting schedule to keep the bank fully informed on the company’s position. Think of it as “lunch with the lender.”
4. Make sure the banker knows it is their responsibility to keep you abreast of the services (and deals) they offer.
One final note. Always work on your ‘next’ banking relationship. You never know when the regional bank you’ve worked with for twenty years will become part of a larger entity that has decided not to serve companies in your market.