Honesty Fosters Good Banking During Bad Times

March 8, 2021 | By Shawna L. L'Italien | Business & Employment | Contact the Author

(This blog was updated in March 2021.)

In difficult financial times, having a strong relationship with your banker is critical. Before you need to borrow money, you should work to enhance your relationship with your banker so that borrowing will be easier when the time comes.

Here are three general guidelines for enhancing and preserving one of the most important relationships in your business.

1. Keep your banker informed

He or she should know about the status of your business, and you should you’re your banker’s input on significant financial decisions.

Share financial information even if you face a declining financial situation. Things will work out best if you follow the “No surprises” rule.

If you’re not comfortable with giving out your statements, provide your banker with the key indicators that you review to measure the success of your business. If you publish a company newsletter, put your banker on the mailing list.

As you hear about borrowing or financial issues, or borrowing needs approach, ask your banker for his input and opinion as to whether new approaches are right for you.

2. Realize the value of collaboration

If you wish to seek financing for a project, begin by talking to your banker. Look at past loan agreements and, in particular, the covenants the bank required in order for you to borrow funds.

In addition to your banker, ask your accountant and attorney for their opinions as to your borrowing ability and, in particular, the amount that you should borrow.

Be ready to negotiate fees for your loan, including the professional fees that will be required from your accountant and attorney, and work to fix these costs in order to evaluate whether borrowing funds is worthwhile.

Collaboration with professionals you will trust will often help you identify and address pitfalls before it’s too late to do so. That can reduce your risk and put you at greater ease.

3. Commit in writing to a realistic business plan

Review your business plan with your key employees and professionals before taking it to your banker. Submit your business plan in writing at the time you request a loan, and be ready to explain the plan in your own words.

Treat your written plan the way you should any written document about your business: You want it to represent you in the best light possible.

A well developed and well-presented business plan will inspire the confidence and support of your banker and of his or her colleagues.

Negotiate your loan with an attitude of cooperation, not confrontation.

The bank wants you to succeed as much as you do, and don’t lose sight of this fact.

Shawna L. L’Italien, a lawyer in the Salem office of Harrington, Hoppe & Mitchell, focuses on on business transactions, estate planning, probate, elder law and real estate law. She can be reached at (330) 337-6586 or at slitalien@hhmlaw.com.