Amid global supply chain interruptions, higher-for-longer interest rates and consumer inflation, who you bank with is more important than ever. A banking relationship is more than the sum of its transactions; it’s a trust that impacts your success and helps you achieve your business goals. The right banker can play a huge role in your day-to-day operations and long-term planning, especially in tougher economic cycles or times of uncertainty.
Think of your banking team as an extension of your business—advisors who understand your goals and support your growth. Your banking team should be committed to understanding your working capital operating cycle and proactively providing tools to expand your business and provide valuable insight into areas of your business that might be overlooked when a business’s engine is at full speed. While many banks offer similar core services, finding one that aligns with your values, vision and strategic direction can make a meaningful difference.
Business leaders understand the importance of attracting the best talent, but do they approach their key relationships, including banks, with the same discipline? Recruiting and interviewing your banking team is equally critical. Following a process and asking the right questions helps ensure all needs are met on both sides.
Assess your business banking needs
It may seem obvious, but it’s crucial to have a firm understanding of your banking needs and what—if any—problem you are trying to solve. Some banks may tout their expertise in loans, cash management or payments, while others highlight advanced technology or more access to capital for large transactions or ongoing needs. Consider:
- How efficient is your cash conversion cycle compared to your peers (account receivables, payables and inventory days)?
- What is the impact to your cash position by improving one day in your operating cycle?
- Do you understand your true costs to manage cash flow – employee, borrowing, and opportunity costs?
As you take stock of the current situation, keep in mind that with economic changes comes opportunity. It’s also important to think about long-term strategic opportunities your business may want to consider. In the lifespan of a business, there will be unexpected opportunities like buyouts or new market movements. When opportunities like these knock, you should be ready with access to resources to capitalize on them.
Meet with banks to evaluate their capabilities and vision
When you meet with banks, be sure to learn about all offerings, not just those you currently use or think you need. Explore all areas of the business, including:
- Technology and tools that lower cost and drive efficiency in the cash conversion cycle
- Digital and fraud protection
- Enterprise Resource Planning capabilities and integration
- Appetite to support growth capital
Be sure to ask about the availability of loans and lines of credit if growth is on your mind. You’ll also want to cover banking platforms, software or programs like automated or real-time payments. Finally, you may want to consider your own personal banking and wealth management needs in addition to business banking needs. Having a full banking relationship and dedicated banking provider for business and personal finances can help simplify planning and access.
Use the 5 Cs as an interview guide
Many banks evaluate their customers with the 5 Cs of credit (character, capacity, capital, collateral and conditions), and businesses should assess the risk of their banks with a similar lens. It’s important to ask the right questions to ensure the bank and team have the capacity and willingness to support your banking needs through all economic cycles.
Who is on my dedicated team?
Interviewing a bank comes down to people and character of the bank and is often the most important. Character is measured in the actions of a business during times of uncertainty and change. Businesses can assess the risk of their bank with a similar lens. Ask the bank how to explain how they viewed your industry during the last several economic recessionary periods. Seek and use references to validate the bank’s feedback.
It’s critical to understand the team’s experience and tenure, as well as the decision-makers in the organization, to get a feel for how the bank operates and how the relationship will be handled. Access to a dedicated banker, the local market leader and credit decision-makers indicates an efficient, streamlined process and is often the largest differentiator in ensuring your bank has the capacity to know your business. The ability to stay flexible and nimble is key, and having a direct line to decision-makers should be a top consideration when evaluating banking relationships.
What does the balance sheet and access to capital look like?
Beyond offerings and a relationship-based approach, it’s also important to evaluate the bank’s stability and reputation. Take time to review its financial health and credit ratings. Check its transparency in operations, as well as the bank’s values and social responsibility goals and how they align with your own.
- Start with the balance sheet. A bank’s balance sheet can tell you the bank’s capacity to weather economic storms. You’ll want to review their loan-to-deposit ratio and diversification of business lines’ deposit sources including industry, location and concentrations. Generally, the higher the ratio and less diverse the deposits are, the less capacity a bank has to support the lending needs of their customers.
- Check their deposits. Deposits are the raw material for banks, and concentrated or volatile deposits impact the bank’s ability to meet their customers’ credit needs. Having a diverse source of deposits during all economic cycles allows banks to manage accordingly. Look for diversity not only in deposit base, but also among industries, geographies and size of companies in the bank’s portfolio.
- Look at charge-offs and non-performing loans. This is the list of loans or accounts that are no longer performing because payments have been missed for an extended period or have been charged off as a loss to the bank. These are a good indicator of a bank’s quality of lending, and you don’t want to see very many of them.
How has the bank performed historically?
A bank’s history and asset performance can shed light on its capacity for long-term success and the conditions under which it can operate successfully. Ask the bank how it performed during the last economic downturn, how it behaved within a certain industry during unexpected highs and lows, etc. Ask the bank to explain how your industry was viewed during the last several economic recessionary periods. Seek and use references to validate the bank’s feedback. Understanding performance during certain periods of time helps piece together a bank’s character and longevity and how it can handle future economic changes that impact you and your business.
Finding a true ally
As bankers, we evaluate character as one of the most important points when we consider working with a business; customers should do the same with banks. When you’re ready to decide, compare the banks you have interviewed based on your key criteria and how they stack up using the 5 Cs. Consider the long-term relationship potential and ability to walk alongside you as you work toward your business goals today and in the future.
