A few months back we talked about the basics of banking, and why it’s so important to have a solid relationship with a business banker.
Now that we’re in a bit of economic turmoil, it’s a great time to once again discuss what your banker can do for you- other than open your checking account and give you a loan.
Your banker should be a part of your finance team- along with your CFO and/or Controller, insurance broker, and tax accountant. A good banker will know your personal and business goals and will help to strategize a plan to buy new equipment, buildings or space, and to finance new product development.
What will a banker do for you?
- Set up a business profile with the bank. Your business should operate as its own entity and needs its own financial records. This includes having bank accounts, treasury management, fraud protection, positive pay, and budgeting tools. Your banker can also help set up merchant services, payroll accounts, a business credit card, and lines of credit. These are all items that (as your CFO) we recommend as basic infrastructure.
- Monitor change. Your banker should meet with your CFO or controller on a monthly basis to review financial statements and talk about any changes in the business. He/she also should be in any planning discussions regarding expansion, retraction, or core business activity that is experiencing change; good or bad. There are tools at their disposal to help with both and waiting until it’s too late is one of the things your banker hates the most.
- Determine “bankability”. Being bankable means that you have filed your taxes for at least two years, have “decent” credit, can demonstrate positive cash flow and liquidity, have assets that can be collateralized, and your business has solid EBITDA.
- What is EBITDA: Earnings before interest, taxes, depreciation, and amortization. (jokingly, we now use EBITDAC- The “C” stands for Covid-19). This is a measure of how operationally sound your business is, because it removes everything that isn’t a direct business expense and focuses on Revenue-COGS-Expenses.
- What is “assets that can be collateralized”: Anything the bank can take if you default…. Ie, inventory, a building, receivables, for example.
If you’ve been deemed as “bankable”, your banker can make a better determination of what he/she can push through underwriting. Here’s a truth about your commercial banker--- they don’t write the loan, they have to convince their underwriters because the underwriters are the ones who are trying to mitigate risk for the bank. Your banker is the person who is helping your business to look pretty before the date arrives.
- Discuss market trends. Typically, your banker doesn’t work on commission, and isn’t out to keep information from you. A good banking relationship means that he/she keeps up to date on what’s going on in the financial markets and is going to advise you on the right time to refinance a loan, borrow money, pay down debt, or continue with that expansion project. They are also well-versed with the SBA process, new and conventional lending programs, and have connections with non-traditional lending sources if you cannot be approved by their underwriters.
In summary, your business banker needs to be one of your most trusted advisors, during good and bad times. Good communication with him/her will secure the best possible outcome should you need to borrow or may be close to default. A bad banker will say they are too busy for you.
If you have questions about your bank, their advice, how to include them in finance conversations, or for a referral, we are happy to provide it.