In a previous post I noted some benefits of a relationship with a community bank. Here are more reasons relationship banking benefits solopreneurs.
Borrowers can benefit from having their deposits with the lending institution. Deposit balances may help self-fund a borrower’s loan with the bank and allow the bank to offer “bundled” pricing similar to the telephone or cable company.
Borrowers with extensive deposit relationships can remind their banker that their deposits partially or fully fund their loan balances and ask that better loan pricing be considered. If a banker mentions their “cost of funds” in this negotiation, remind them they aren’t paying you a “cost of funds” rate on your deposits and ensure your deposit balances are reflected in your loan rate.
Higher Service Levels
While banks try to offer excellent service to all clients, a client with deposit and loan balances is more beneficial to the bank. As a result, the relationship banking customer may receive an extra level of service. This is especially true for the solopreneur since the banker can see both the business and personal account activity and quickly assess the customer’s financial standing.
Since small business owners can leave funds in the business or distribute them to themselves, having access to both accounts allows the banker to more easily assess the financial status of the customer. This familiarity can benefit the solopreneur when they apply for a loan since the banker is more familiar with both sides of the business and personal balance sheet.
A relationship with a bank allows the banker to consider the entire relationship when fees are assessed. If you fail to make a transfer from one account to another and the account incurs an overdraft or maintenance fee, having the entire relationship with a bank may allow the banker to waive the fee since the funds were on deposit, just in a different account.
I learned this lesson from a large depositor after charging them an overdraft fee due to a missed transfer. He said “Andy, it shouldn’t matter which account my balances are in, just that they are in your bank.” I ended up waiving that fee!
“Cart in a Ditch” Flexibility
Years ago an elderly mentor told me “The test of a good borrower is not if they get their cart in a ditch. Everyone’s cart ends up in a ditch at some point. Instead, the test of a good borrower is whether they hand you the reigns and say 'Here’s your cart' or whether they climb into the ditch and help you push the cart out.”
During the recent downturn, plenty of borrowers got their “carts in ditches” and bankers had to be aggressive to protect the bank and its depositors. Borrowers with lengthy relationships that included deposits were sometimes given more latitude since the bank had a better understanding of their financial situation.
Having a long-term relationship with a bank may allow the bank to be more flexible if you “get your cart in a ditch” one day.
Has relationship banking helped your business? Tell us how in the comments blow.