For small businesses, maintaining connections is vital to success. Fostering goodwill with your suppliers, partners, and financial institutions is a great step to reaching your goals as a business. One important business relationship you must nurture is one with your bank. A good banking relationship can make it easier to secure funding for any purpose, whether you aim to expand your business or fund your daily operations.
Why Keep a Good Banking Relationship?
Your relationship with your bank can influence the business loan application process and the terms you might receive. Here are the key aspects where a positive banking relationship can play a crucial role:
Faster and Smoother Application Process
When you have an established relationship with a bank, getting a business loan can be faster and more convenient. The bank already has access to your financial history, in many instances will understand your business operations from this data, and may have a better grasp of your business’s potential. This familiarity can lead to a more streamlined application process. On the other hand, if you haven’t fostered a good relationship with your bank, they may need more time to verify your credentials and financial information.
Better Loan Terms
A strong relationship with a bank could lead to more favourable loan terms, such as lower interest rates, higher loan amounts, and more flexible repayment schedules. Banks often give the best terms for customers they consider low-risk. Your history with the bank can serve as evidence of your reliability and creditworthiness.
Easier Access to Additional Financing
Once you’ve established a strong track record with a bank by repaying loans on time and maintaining healthy account balances, the bank may be more willing to extend additional credit to you in the future. This can be particularly beneficial for expanding your business or for emergency funding needs.
Advice and Financial Planning Help
Banks often provide valuable business advice and financial planning services to segments their clients. This can include insights on the economic market, how to grow your business, and even advice on investment opportunities.
How to Improve Your Relationship with Your Bank
- Timely Payments: Make loan payments on time, every time. This is perhaps the most straightforward way to maintain a good banking relationship. Timeliness in payments demonstrates reliability and financial responsibility.
- Transparent Communication: Keep your bank informed about your business’s financial status, especially if you anticipate cash flow issues that could affect loan payments. Banks appreciate transparency and may be able to offer solutions or adjustments to help you through difficult periods.
- Respond Promptly to Bank Requests: If your bank requests information or documents as they will through annual reviews, respond promptly and thoroughly.
- Use Loans Wisely: Use the borrowed funds for the purposes outlined in the loan agreement and as discussed with your bank. Misusing funds can lead to trust issues and negatively impact your relationship with the bank.
- Maintain Good Financial Health: Demonstrate financial responsibility by managing your cash flow wisely, keeping debt at manageable levels, and maintaining good credit. Banks value clients who exhibit financial stability and reliability.
- Utilise More Bank Services: Beyond just maintaining an account, consider using other bank services such as savings accounts, merchant services, or credit cards. Utilising a wider range of services demonstrates your engagement with the bank and can deepen the relationship.
- Negotiate, But Be Realistic: While it’s important to negotiate for better terms, being realistic about what you can afford and what the bank can offer is crucial. Demonstrating awareness of your financial limits and the bank’s policies can build respect and trust with the bankers you’re working with.
