Banking on a relationship: how to win friends and influence your financial institution
Guest post by Christopher Niesche
This article originally appeared in AIM: for management and leadership excellence, AIM’s bi-monthly magazine exclusively for Members.
A lot of small and medium-sized enterprises (SMEs) don’t pay much attention to their relationship with their bank. This is hardly surprising. Owners and managers of SMEs tend to be jacks- or jills-of-all-trades – by the time they’ve taken care of their businesses’ tax affairs, human resources and IT, as well as running the actual business, they want to spend as little time as possible on their banking and the last thing they want to think about is building a good relationship with their bank. Yet there are many good reasons for doing so.
“Some people say that loyalty counts for nothing in banking these days. I don’t agree with that. A good track record with the bank is certainly helpful in getting support to fund a growing small business,” says Neil Slonim who, after a 30-year career at the National Australia Bank (NAB), established The Bank Doctor to help advise SMEs on their banking. While longevity can help form a good relationship with the bank, Slonim says there are other factors. Essentially, small businesses have to stick to the commitments they’ve made to the bank. The most obvious one is to repay money on time, but there are more. They need to meet the performance targets they’ve agreed on as well as complying with reporting requirements and due-by dates.
“It makes a difference in the way a bank sees you, as distinct from if a bank has to constantly ring up or write and ask: ‘You were supposed to send in your accounts last month, where are they’? You have these little black marks attributed to your name over time,” Slonim says.
“One thing I say to SMEs is you will never get into trouble with your bank if you do all the things that you signed up to do when you accepted the bank’s offer of finance.” Slonim says that SMEs need to be proactive in fostering a good relationship with the bank and make the calls themselves rather than waiting for the bank to contact them. “There are two sets of rules – one for you and one for the bank – and you need the bank more than they need you, so suck it up and get on with it,” he says.
Also businesses that borrow up to $1 million are more likely to conduct their banking relationship via a call centre rather than through a personal business banker, he says. Banks are also interested in improving their relationship with SMEs. In a way they have an easy job, but this is because expectations of them are so low, says Slonim.
Surveys have shown there’s a high level of cynicism and mistrust among SME customers. The banks could start with changing their marketing and ditch the advertising campaigns telling businesses the banks live in their world and they’re here to help.
“One of the things that the big four could focus on is under-promising and over-delivering rather than the other way around,” Slonim says.
Providing faster answers and faster service would also help. Slonim says he’s been working with an SME which has a borrowing limit of $2.5 million and wants to increase that by $300,000 but has waited 10 weeks for an answer. It can also be very time-consuming and frustrating for SMEs who want to fulfil simple requests, such as a bank guarantee, to give to the landlord to cover the rent, says Slonim.
“Just doing the simple things right and providing access to someone who can resolve problems would be something that would be very much appreciated and would help to start to build the trust between the SMEs and their bank,” he says.
Kate Gibson, ANZ general manager of small business banking, says the bank is moving to provide faster answers for SMEs. She says that many small business customers do their accounts and banking outside of business hours so prefer to use a call centre rather than have a single contact person who is available only in regular working hours.
“The whole bank needs to actually understand who you are because, increasingly, small business customers are operating 24/7,” she says. Other small business might prefer to conduct their banking via their branch and branch manager, while mid-market businesses will typically have a relationship manager.
“A good relationship for me – and I think, from my customers’ point of view – should be that someone has spoken to them, has sat down with them and understood their business, and they’ve given them information about how they can utilise bank products and services to make their business more successful and make their life easier,” Gibson says.
This means that the bank can give the business a quicker answer to a question and if the business wants finance they can get it more quickly because the bank will already know about that business. Customers should go to the bank once they start having difficulties and not leave it too late.
“The really difficult conversations we have are when someone comes in and things haven’t been going so well and they have maxed out every credit card, every overdraft,” Gibson says. “You’ve got far fewer degrees of freedom in terms of how we can work with you to make it successful at that point than if you’d come in earlier in the piece.”
NAB general manager for small business David Bannatyne says rather than splitting their business, SMEs get a better outcome if they pool their business and personal banking at the one institution. Another tip is that SMEs can help themselves by presenting the bank with a quality business plan. “That gives us an opportunity to understand where they’re going and where they’re heading and we can lend money against that,” Bannatyne says.
Peter Strong, chief executive of the Council of Small Business Australia, says banks can help SMEs develop their business plans. “Nobody’s got a perfect business plan. It’s a very complicated area so you want someone who’s got a good understanding of that,” he says. SMEs should seek out a banker who they have confidence in for these discussions, although this doesn’t mean they have to be a manager.
Tips for building a good rapport
Perform - Build up a track record of good performance over several years. The bank will perceive you as a reliable business and this will go in your favour when it comes time to borrow or increase your borrowings.
Meet your commitments - Do everything you agreed to do when you signed up to finance from the bank. This means providing regular financial information on the date you and the bank have agreed. Neil Slonim says this makes a big difference to the way the bank perceives you.
Understand the bank’s perspective - Try to understand what the bank wants from you because that way you’ll be in a better position to deliver. For instance, banks all aim to cross-sell insurance and superannuation products and buying these from your bank will make you a better customer.
Meet your budgets - It’s important to hit all the financial targets that you give your bank when you’re applying for finance. If you say you’re going to make $500,000 then that’s what you have to do.
Keep them informed - Bankers hate surprises. Even a ‘good’ surprise can raise the question of why didn’t you tell the bank beforehand and makes them wonder if you’ll also suppress bad news.
Fess up to bad news - If you’re in financial trouble or will miss a loan repayment let the bank know as soon as possible. That way you’ll have a better chance of being able to work something out.
Chris Niesche is a business journalist with two decades' experience and a former deputy editor of the Australian Financial Review. He writes across a range of topics, including finance, trade, property, management, small business and human resources. His company, Headline Content, produces marketing and journalism content for corporate websites and blogs.