Banks like the concept of “relationship banking.” In uncertain economic times, bankers are more likely to lend money to “proven entities” — customers they already know and trust. Research on this style of lending provides valuable insights.
Relationship Banking Insights
1. Borrowers who have used the same bank for a long period of time often pay lower interest rates, according to the National Survey of Small Business Finance. While banks recognize high interest rates produce tidy profits, they are more likely to offer their best rates to customers they already know.
2. Lenders require less collateral from borrowers they already know and trust.
3. Local bankers know local people and local markets. It’s easier to get a business loan from a banker who is familiar with the economic conditions of your market.
How to Improve Your Odds
Open a business account. During the course of normal business, stop and talk with the manager and loan officers to get to know them.
Borrow a small amount of money from your bank, even if you don’t need it. This will allow you to develop a history of on-time payments. Remember, your long-term goal is to develop a relationship with your bank. That will make it easier to land a larger loan when the need arises.
Open a credit card account using the name of your business. Yes, this is similar to taking out a small business loan in the name of your business. It’s just another way to help your business build a credit history with your banker.
Invite the bank manager to your company’s holiday party! What’s that? Your company is too small to have a party? Use your creativity. You could just invite your banker to go golfing with your team — and call it a party. I am not suggesting that you should ask for a loan on the golf course. I am simply trying to give you some ideas to help you develop a relationship over time.
Other options include joining the local chamber of commerce or asking other business professionals to introduce you to their banker. Don’t forget that lenders often have their own financial goals to meet. Most of them would be glad to call you a client. So, get out there and make relationship banking work for you.