I’ve seen a lot of business leaders treat their bank or other financial partners as an enemy rather than a friend. I think this is a basic mistake, which is easily corrected. Your banker might not always agree with everything you do and the bank will certainly impose demands on you that require you to do more work, but in the end, a banker who knows you and your business well can be the best ally you have in growing your business.
Banking relationships have three stages – courting and negotiation, closing and maintenance. During the first stage, there’s every reason to negotiate a good deal for yourself while leaving something on the table for the bank as well. No bank will do a deal that is unprofitable for them, and you should not want that kind of lopsided situation. The deal has to be fair and profitable for both sides.
More importantly, it has to be sustainable for both sides over a multi year period of time. Any deal you do should have at least a two year life span, and better three or four.
This is where good relationship maintenance comes in. Too often, it’s easy to think of a negotiation being the whole relationship.
Sometimes, we lose sight of the ultimate destination, which is a working thriving banking relationship. Once the deal closes, the tone and substance of the relationship should change into that of a partnership. Whereas negotiations are necessarily adversarial, successful banking relationships are partnerships. Sometimes it’s necessary to have one person negotiating the deal and another maintaining the relationship in order to match the needs of the relationship with the styles of the actors.
It’s important to share information with your bank – whether they ask for it or not. Preferably, your banker will know and understand as much about your business and the overall market situation as you do.
Sending information before the bank asks for it, with a summary narrative that explains the raw data is a great way to build trust with your financial backer.
Trust is the most important element of a successful banking relationship. It’s built over a long period of time, and will be strong if you have a long track record of keeping the bank informed of critical events and issues – whether the news is good or bad. Bad news is especially important to share in a timely fashion. Don’t keep bad news a secret hoping it will go away. Bring it out, air out your concerns and show the bank you have an affirmative plan for dealing with the situation. That’s what they want to see, and they should respond in a supportive fashion. The bank’s preference is always to back the management team it gave the money to in the first place. But any savvy businessperson will change management teams if they appear to be unable to handle adverse circumstances. So, show them your stuff and remind them why you are the one they need to continue to believe in – it’s what they want to do anyway, but you need to make it easy for them to think that.
When you strike a multi-year relationship with a financial backer, you can count on one thing: it’ll change. It has to. Banking relationships are often rigid in character and they are negotiated using the past history of the business as a guide to the future.
That’s the best way to do it, but it’s deeply flawed in that it can’t account for changes in the market place which force changes on the business. In our industry, falling profit margins on POS terminal and merchant processing contracts means that any ISO will make changes to their business model to grow revenues and keep merchant bases intact.
In order for your bank to be confident about changes you will need to make in the second year of your relationship, you need to build a reservoir of trust that you can draw on. That faith will help you communicate that what you are proposing is a good idea. Any proposal for change carries with it an element of uncertainty which can only be bridged with the kind of confidence that comes from a solid relationship based on trust, experience and openness.
Once the deal is closed, treat your bank like the business partner they are. Instead of constantly beating them down for a rate concession, think of them as a strategic resource for the future and build toward that meeting where one day, you’ll be asking them to go the extra mile for you. When that day comes, you’ll be glad that you worked hard all along to build the confidence levels high enough to sustain the uncertainty that comes with change.
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