Choosing the Right Commercial Banking Partner for You, Part 2

Posted by Melinda Toy on Mar 01, 2016 06:00:00 AM

Topic: ALL

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In Part I, we looked at what may cause a business owner to pursue a new financial partner. We reviewed some initial factors, including no longer being a priority to one’s bank; having negative customer experiences; and simply wanting a better price. In Part II, we will look more in depth at questions one should ask when reviewing a potential commercial banking partner.

What should you review when making a decision?

History of stability

So you’ve taken the leap, and made the decision to finally look for another partner. So now what? You know why you did it, but what should you look for in a new bank?

Since 2008, distrust of financial institutions has seeped into public attitude. Many banks suffered the consequences due to the faults of other financial institutions that mishandled funds, were involved in scandals, or provided poor customer experiences. Where one may have felt more comfortable letting their bank manage aspects of their business finances, now skepticism has become more prevalent.

Part of dealing with this skepticism and finding the right partner is to realize that there are still good institutions out there. One of the first things you can do is review the bank’s history. How long has the institution been functioning? What events have happened since its inception? Were there any major fallouts or bankruptcies? If so, how did the bank come out of this? Are they growing or downsizing, and why? Who is on the management team?

There is no cookie-cutter solution. For example, a bank may have a very good reason for economizing. It may make them stronger in the long-run. However, one needs to review their history as a whole, including how long it has been in existence, and how stable the institution has been since it was founded.

Financial strength and capitalization

It most likely goes without saying, but criteria should include finding a banking partner who is financially strong. Make sure you review past annual reports and statements that give a solid picture of how your potential partner will operate. Pay attention to stats and ratios that indicate how well-capitalized an institution is, and how much risk they carry. Also, find out who is keeping tabs on your partner. Who is the bank’s auditor? Do they have a good reputation? Are any red flags brought to light by the OCC or other credible regulatory agencies?

Your banker

Let’s say financial strength and stability have been checked off the list. Once those are accounted for, next you need to find out who your banker will be. You need to be comfortable with your relationship manager’s expertise, way of doing business, and personality. Finding this may be a short or long process. You should also make sure to review your banker’s track record. Depending on the situation and industry you are in, experience can be very valuable. In other relationships, a younger banker with less experience is not necessarily a negative. The true litmus test that separates an average relationship manager from a great one, is a professional who actually shows interest in and understands your business; one that frequently follows up and values the relationship; a banker that shows transparency in business dealings; and ideally, someone you could come to call a business friend.

A banks ties to your local community

Another factor that is important to consider is a bank’s presence (or lack thereof) within your market. Certain financial institutions may have branches in the area, but how invested are they in your community? Typically if a financial institution has an interest in the same local area as your business, they quite possibly understand your business better, and will be more dedicated to helping you meet your goals. Also, pay attention to positive and negative word-of-mouth. Find out what markets a bank specializes in and contact your trusted network for feedback on whether they would be a good partner.

The bank’s culture

Does the bank you are considering seem stuck in the mud, or are they constantly looking for ways to enhance the customer experience? Who else besides your relationship manager have you interacted with from the bank? A bank’s culture permeates across all business lines, employees, and situations. If you end up having a negative experience, you’ll need to observe how it is handled. No employer can hire an entire staff of perfect employees; however, when you take the concern forward, are you satisfied with the result?

If you’re at the point of evaluating your banking relationship, remember, there are many factors to consider before deciding which partner is right for you. It may be a short or long process. However, don’t be pressured, and don’t make a move until you know it’s the right one. You’ll be glad you took the time to think it through, and will avoid sleepless nights, dreading another rigorous approval process.

Learn more about Bank Mutual’s Commercial team.