A banking relationship is more than the sum of its transactions; it’s a trust that directly impacts how you achieve your business goals. The right banker plays a huge role in your day-to-day operations and long-term planning, especially in tougher economic cycles or times of uncertainty.
Think of your banking team as an extension of your business, advisors who should be committed to understanding your working capital operating cycle and proactively providing tools and insights to expand your business. While many banks offer similar core services, finding one that aligns with your values and strategic direction can make a meaningful difference.
Business leaders understand the importance of attracting the best talent, but do they approach their key relationships, including banks, with the same discipline? Following a process and asking the right questions when interviewing your bank helps ensure all needs are met on both sides.
Assess your business banking needs
It’s crucial to have a firm understanding of your banking needs and what, if any, problem you are trying to solve. Consider:
- How efficient is your cash conversion cycle compared to your peers?
- What is the impact to your cash position by improving one day in your operating cycle?
- Do you understand your true costs to manage ALL cash flow?
Keep in mind that with economic changes comes opportunity. It’s also important to think about long-term strategic opportunities your business may want to consider, so when unexpected opportunities knock, you are ready with access to resources to capitalize on them.
Evaluate banks’ capabilities and vision
When you meet with banks, be sure to learn about all offerings, not just those you currently use or think you need, including:
- Technology and tools that drive efficiency in the cash conversion cycle
- Digital and fraud protection
- Enterprise Resource Planning capabilities and integration
- Appetite to support growth capital
Be sure to ask about the availability of loans and lines of credit if growth is on your mind; cover banking platforms or programs like automated or real-time payments; and consider your personal banking and wealth management needs as well. Having a full banking relationship and dedicated banking provider for all finances can help simplify planning and access.
Use the 5 Cs
Many banks evaluate their customers with the 5 Cs of credit (character, capacity, capital, collateral and conditions), and businesses should assess the risk of their banks with a similar lens to ensure it has the capacity to support your banking needs through all economic cycles.
Who is on my dedicated team? Interviewing a bank comes down to people and character of the bank, measured in the actions of a business during times of uncertainty and change. Ask the bank to explain how they viewed your industry during the last several economic recessionary periods and use references to validate the bank’s feedback.
It’s critical to understand the team’s experience, as well as the decision-makers in the organization. Access to a dedicated banker, the local market leader and credit decision-makers indicates an efficient, streamlined process and is often the largest differentiator in ensuring your bank has the capacity to know your business.
What do the balance sheet and access to capital look like? Beyond offerings and a relationship-based approach, it’s also important to evaluate the bank’s stability and reputation.
- Start with the balance sheet. A bank’s balance sheet tells you the bank’s capacity to weather economic storms. You’ll want to review their loan-to-deposit ratio and diversification of deposit sources including industry, location and concentrations.
- Check their deposits. Having a diverse source of deposits during all economic cycles allows banks to manage accordingly. Look for diversity not only in deposit base, but also among industries, geographies and size of companies in the bank’s portfolio.
- Look at charge-offs and non-performing loans. This list of loans or accounts that are no longer performing because of missed payments are a good indicator of a bank’s quality of lending, and you don’t want to see very many of them.
How has the bank performed historically? A bank’s history and asset performance can shed light on its capacity for long-term success. Ask the bank how it performed during the last economic downturn, how it behaved within a certain industry during unexpected highs and lows, etc. Understanding performance during certain periods of time helps piece together a bank’s character and longevity and how it can handle future economic changes that impact you and your business.
Finding a true ally
As bankers, we evaluate character as one of the most important points when we consider working with a business; customers should do the same with banks. Using the 5 Cs as you consider
the long-term relationship potential as you work toward your business goals will benefit you today and in the future.
David Andersen, UMB Bank
David Andersen is regional president for the UMB Commercial Banking division in Utah, a region that’s quickly become one of UMB’s most strategic growth markets. David has more than 15 years of commercial and business banking experience and is responsible for growing UMB’s footprint in Utah.