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As I See It

Banking landscape continues to change around state

This month we’ll see the passing of an age when the Union Planters merger with Regions concludes. Venerable old UP, the bulwark of Delta planters for generations, will, in name anyway, disappear from the landscape. The new organization will be better than ever, we’re told, due to the synthesis of two really big companies.

The transformation of the banking industry into large regional and super-regional banks and smaller community banks is taking place all around us. It appears that soon there will be no place for intermediate size banks on the playing field.

Which is better? A multi-billion dollar monolith that can offer every conceivable banking related service or smaller community banks that offer most services and know your name. It really depends on the desires of the customer. Some feel more comfortable with the big banks and others prefer smaller banks.

Bank size doesn’t matter; solid relationship key
Notwithstanding your choice of big bank or smaller bank, a banking relationship is critical to everyone who owns or manages a business. We hear this term “banking relationship” kicked around a lot, but, in real life, what is it and how does one acquire it?

I believe I can answer my own question. Entrepreneurs have to have capital to get their enterprises underway. Capital comes from savings, family inheritances or borrowing. Not having the patience to wait for my savings to accumulate and having no expectation of inheriting anything, I, by the process of elimination, chose the borrowing route.

Accordingly, having no capital to start with, I had to persuade a banker to go my bail with little in the way of collateral to justify the loan. Having neither money nor collateral, I had no choice but to talk my way into the bank’s vault.

Am I a slick talker or what?

Banker is a business partner

Once a banking relationship is established, it must be maintained. That sounds easy to do, but in real life, it’s pretty hard. The principle rule for the care and feeding of a banking relationship is no surprises. Next to cold coffee, nothing upsets a banker’s apple cart like bad surprises.

It’s helpful if everything goes as planned and there are no unanticipated problems. However, I’ve never known a business that unfolded exactly as planned and reached financial nirvana without at least a few bumps in the road.

So, if one encounters a bump in the road, what should one do? The toughest choice is also the best answer. To preserve the banking relationship you must rush the bad news to your banker as soon as you see it coming up on the screen. Now, this is a direct and significant violation of human nature, which naturally, is inclined to put the best face on every situation and keep problems carefully concealed.

Bad idea.

More likely than not you’ll have to face the problem sooner or later and the sooner the better. By treating your banker as a valued member of the team, he or she has time to consider options that may save your business life. Calling on Thursday afternoon to announce that you can’t make payroll on Friday morning will not result in any creative solutions to your problem and will tarnish your image irreparably.

And, image is what banking is all about. Banks loan to the person and not to the deal. Thus, a person with a good banking track record is more likely to get a loan for a marginal deal than someone with an tarnished track record and a great deal.

Truth is, anyone can generate impressive pro forma financial projections for a new deal. Bankers need to see a familiar, and trusted, face in the group to really get interested.

Big bank, small bank, it doesn’t make any difference. Your reputation means everything, and working every day to develop a good reputation is the only way to go. And, developing a good reputation is fairly simple. Just do what you say you’re going to do and do it on time. If you see trouble up ahead, call your banker immediately. If the problem doesn’t materialize, you’ll still get credit for being honest and forthright.

Manage credit wisely

Not everyone is willing to forgo instant gratification in exchange for a good banking connection. Careful use of credit seems to be a suffering, if not dying, art these days. Our society has gone credit card crazy. Committing a significant portion of this month’s income to pay for last month’s purchases seems to be the norm. I got an offer through the mail to install a credit card machine at our hunting club several weeks ago.

If that’s not bad enough, I see that McDonald’s has credit card machines in their restaurants. If you need to finance a Big Mac and pay for it over the next year or so that should tell you something about your financial situation.

Bankers won’t look kindly on anyone with large credit card balances. It’s almost always a sign that the prospective customer has problems balancing his wants and his resources.

The banker is likely to fear, and with justification, that when the time comes to decide whether to make a loan payment or buy some frivolous stuff, Wal-Mart will trump the bank every time. Thus credit cards and overall inability to manage credit are the antithesis of a good banking relationship.

I have partnered with banks constantly over the past 30+ years. I couldn’t have done the things that I have done without them. Thus, I am deeply indebted to the banking industry for helping many of my dreams come true. If you don’t have a banking partner that considers your relationship an asset to the bank this is a good time to get one. And, throw those naughty credit cards away!

Thought for the Moment

Common sense is not so common. — philosopher and writer Voltaire (1694-1778)

Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.

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