The New Banking Rapport
The age of relationship banking may be gone, but savvy business owners can still find a bank with that personal touch
If you're in the market for a business equity line or operating capital loan, be prepared to talk hard-and-fast numbers with your banker. In today's slumping economy, your credit ratios, balance sheet, inventory levels and revenue projections hold more sway with lenders than
long-standing personal banking relationships.
Pam Jagdfeld, a 30-year banking veteran and president for the Mankato market of United Prairie Bank, says that, like Minnesota manufacturers, commercial lenders are being forced to be more circumspect in their spending habits.
"As a result of the economy, there is not that same risk appetite for banks," Jagdfeld says. "There's not the same level of competition because of mergers and consolidations. Banking relationships have become a casualty of that transition. ... Banks are obviously very
highly regulated. We're experiencing high costs of FDIC insurance coverage. Those premiums have escalated significantly in the past year. We're being more and more closely scrutinized by [bank] examiners regarding credit underwriting and credit quality."
With tighter restrictions, some manufacturers have moved their accounts to other, often smaller, banks. They argue that many of the technological advancements in banking have resulted in a loss of personal touch among most bankers. Jagdfeld agrees. "It took away the old
fashioned customer service delivery. As a result of that, relationship banking has changed."
But Jagdfeld is quick to add that relationship-oriented banking is still valued by many banking organizations. Business owners just have to know where to look. "Part of the challenge or burden of identifying a place where you can still have that relationship environment
falls on the customer," she says. "[They need] to do their due diligence and make sure that they know as much about their bank as the bank wants to know about them. I think the [borrower's] personal story still has an impact, but it's definitely not as significant as it has been
historically. Right now, there is much more of a focus on equity and cash flow."
To find a bank that fits your business, Jagdfeld suggests evaluating both the bank and the banker. "Is the bank in a strong capital position? Has it historically focused on serving businesses such as yours? Has it recently changed course due to financial problems? Those
things about the bank are going to help identify what parameters the bankers are actually going to be able to function within," she says.
Beyond selecting a brick-and-mortar bank, selecting a banker is equally important. This is where companies should work to maintain a personal connection. It's critical for your banker "to understand and know what you do, how you do it and why the things that you're doing in
your company differentiate you from your competition," Jagdfeld says. "They should know if you're facing adversity. They should be the first person you go to to talk about those things. They really need to be a partner in your business."