Does Your Banker Have Your Back?
5 proactive steps for protecting your small business financial needs
PHOTO CREDIT: Getty Images
Joe Fuld is an Entrepreneurs' Organization (EO) member in Washington, D.C. and President of The Campaign Workshop, a political and advocacy advertising agency that provides strategy, digital advertising, content and direct mail services to non-profit and political clients. Joe recently changed banks unexpectedly; we asked him about the circumstances around that process. Here's what he shared:
It takes money to make money. As an entrepreneur, a line of credit is a life-or-death priority that enables us to leverage opportunities and successfully navigate emergencies. I thought I had the right banker for my needs and an airtight line of credit; I was content with my five-year banking relationshipuntil suddenly, I wasn't.
Last January I was feeling quite confident about my political and advocacy advertising business, with gross and net profits at an all-time high. So, it took me by surprise when my bank of five years called, asking for a ton of information in order to renew my line of credit. I hadn't anticipated this roadblock.
Months earlier, my former banker left the bank with little explanation, and the bank itself left me hanging with very poor follow-up. It took four months and several attempts to contact my "replacement banker," who finally returned my calls when he needed paperwork to review my line of credit. I tried to connect and educate him about my business model, but soon realized we were not a good fit. He was asking questions that he should have been able to answer, and he wanted a business plan, which I had never shown them in the past. My business was producing good numbers, but he didn't understand it and didn't seem interested in learning.
I had to make a changefast. I tapped my EO Forum contacts, who shared that good numbers had little to do with a bank increasing or decreasing a line of credit. This seemed counterintuitiveif I was approved based on numbers inferior to those that I had now, wouldn't the bank love it when my numbers got better? The short answer: No. The longer answer: Some banks make decisions based on a cryptic "market-driven" process that has nothing to do with how you got funding in the past.
I went to my network to find a new banker. To make my decision, I asked three questions of my Then-Banker and my Prospective Banker. Their answers were very different:
What kind of loans do you offer?
My then-banker worked mainly in the government contracting space. Not only was this not my industry, but the metrics used to evaluate an advertising agency versus a government contracting business are as different as night and day. My prospective banker had a very different approach. She worked with all kinds of businesses, including advertising, real estate firms and restaurants. The bottom line was that she worked with entrepreneurs, while my then-banker focused on contractors.
How do you decide whether to give a small business a line of credit?
My then-banker gave a murky response. My prospective banker offered a crystal-clear method.
What is your timeline?
My then-banker had an undefined process and timeline for loans, while my prospective banker outlined coherent, fast timelines.
In the end, I switched banks so that my prospective banker became my new banker. I scored an increase in my credit line and a truly attentive team. I couldn't be happier with how the situation turned out, but if I hadn't been mindful about my small business banking needs and an emergency had cropped up, I could've found myself in a very difficult situation.
So, what would I do differently?
1. Be proactive.
It was my busy season when my former banker left, but I should have been more assertive in solidifying a new banking relationship sooner.
2. Recognize the signs.
In hindsight, it's obvious that my former bank's priorities had changedI was no longer a priority. Even before my former banker left, every credit line review was a hassle, but he understood my business, knew how to navigate the bank, and advocated for me. Without his help, I wasn't able to keep growing with that bank.
3. Have more funding than you need.
It is tough to get funding from a bank when you're in a time crunch. I was fortunate that my numbers were good, but I had to constantly and proactively make the case for my business to ensure access to funding for growth or emergencies.
4. Formalize a business plan.
I had all of the elements of a business plan: budgets, comps, good financials, accounts receivable, a detailed pipeline and evaluation metrics. However, these separate items weren't unified in a written plan. Formalizing a business plan was very helpful for both the short- and long-term.
5. Cultivate a network.
One of the biggest lessons I learned from this process is the importance of having a network of peers who share their experience. My business groups played critical roles in reviewing my business plan, providing great feedback and helping me identify a banker who fits my needs.