- Business and Employment
Business Lender Communication
Commercial Lender Communications
The practical need for improved business lender communication is effectively illustrated by recent indications that most small business owners dislike and generally avoid communicating with their commercial banker. Small businesses should also benefit from devoting more attention to commercial lender communications because of the ongoing lack of adequate commercial loan activity for small business borrowers.
But let's be honest — banks are (almost always) difficult to work with, so improving communication with business lenders will involve some advance planning. Persistence is also likely to help as many banks seem to prefer two-letter words like "No" instead of those long three-letter words such as "Yes."
By the way, business lender communication involves a particular emphasis on learning how to use "Yes" and "No" more effectively. Many centuries ago, Pythagoras described this when he made the following observation.
The oldest, shortest words - 'yes' and 'no' - are those which require the most thought.— Pythagoras
Seeking Better Communication with Banks
How Good Is Advice from Bankers?
The Carroll Quigley quote below represents an excellent starting point for a discussion intended to help improve small business owner communications with their commercial banks. Banks have rarely enjoyed a good reputation with the public. There is an ample supply of critical remarks directed at banks during the past two centuries. The Henry Ford quote (near the bottom of this article) is another representative sample of how banking has been routinely assessed by many prominent business people over the years. This anger and frustration is also clearly evident today.
Whether or not you agree or disagree with the sentiment of these or similar banking quotes, there are cost implications associated with either improving business lender communication strategies (frequently producing cost savings and operating expense reductions) or ignoring commercial lender communications (likely resulting in paying too much for financing or inability to obtain small business loans).
"The history of the last century shows that the advice given to governments by bankers, like the advice they gave to industrialists, was consistently good for bankers, but was often disastrous for governments, businessmen, and the people generally."
The Most Important Activity for Business Owners?
More effective business lender communication is a necessary goal for small businesses (and big businesses) to pursue, and they will need to do so relentlessly given the almost certain opposition that banks are likely to offer against any effort that challenges bank attempts to write and control the "rules."
Despite general agreement that the recent financial crisis was facilitated by excessive risk-taking by banking institutions, the banks are not throwing in the towel or admitting to any real responsibility (except when class action lawsuits force them to give back a token sum of money here and there). It was recently reported that there are at least 10 financial sector lobbyists for every Member of Congress. Banks and bankers are behaving as if they are under attack for taking perfectly responsible actions rather than taking the financial system to the brink of collapse. Some observers would probably ask, "How can you truly communicate with banks?" Effective commercial lender communication might be the single most important activity for small business owners. Regardless of resistance from banks and bankers, this should be the one thing that is never overlooked or left to chance.
Two Key Points about Commercial Lender Communication
Small business owners historically just don't like communicating with their banker. But let's face it:
(1) Banks can be difficult to deal with.
(2) Advice from bankers is not always in the best interest of small business owners.
How Do You Feel About Communicating With Lenders? - A Lender Communication Poll
The poll below is measuring how you feel about communicating with bankers and lenders in general.
Which of the following best describes how you feel about your communications with banks and other lenders?
Timing is everything, especially when it comes to talking with your banker!
Prime Candidates for Improved Business Communication with Lenders
The common theme in the short list of business lender communication candidates shown below is the inclusion of "before." The intent is to emphasize the critical need to engage in better business finance communication with banks and other commercial lending sources sooner rather than later. Timing is everything, especially when it comes to talking with your banker!
- Before applying for any commercial loan
- Before finalizing any business financing
- Before refinancing a commercial real estate loan
- Before selecting a new business bank
- Before firing your current commercial banker
Improving commercial lender communications includes analyzing the bank and the bankers involved. Why? Because many of today's banking institutions are "Zombie Banks" that literally don't have sufficient financial resources to make "normal" loans.
Who You Talk to Is Just As Important As What You Say
When it comes to deciding who you should be talking to, a critical part of the business lender communication decision involves eliminating "bad banks" and "zombie banks" from the conversation.
Improving Business Lender Communication Should Start with Business Writing
Henry Ford, founder of the Ford Motor Company, talks about banking
"It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning."
Taking the Initiative — Don't Wait for Your Bank
The severity of current financial risks and problems means that small business owners cannot wait until their bank officially says "No" before moving ahead with their business life. One of the major problems with the entire banking crisis was the failure of banking institutions to communicate what kind of risks they were taking and the problems that were caused when things went wrong. The official line even now from most banks is that everything has fully returned to normal.
Like many children who suspect that parents have a book to refer to when answering questions or handling some new development, we can almost imagine that there is a "banking book" that contains story lines like the following:
(1) We will resume lending to companies as soon as the bailout funds are received.
(2) We take risk management very seriously and will take every precaution to ensure that these problems do not occur again.
For small businesses, taking the initiative especially means proactively investigating banking options rather than assuming that story lines like the above are true. As Peter Drucker so astutely observed in the quote shown below, we should all pay attention to what isn't being said.
The most important thing in communication is to hear what isn't being said.— Peter Drucker
Business Lender Communication: Why Is Negotiating Important?
Any list that describes the importance of an effective process for negotiations will vary widely from one individual to another. Here are five generic examples with a more specific illustration accompanying each one:
- To solve problems. Example: A local government has the legal right to regulate businesses in a way that is likely to lower property values for all owners of funeral homes. The funeral home owners open negotiations to resolve this problem.
- To reduce costs. Example: A small business owner negotiates with their bank to lower commercial financing costs.
- To resolve a disagreement. Example: A retail business currently operates 24 hours a day, 7 days a week. Nearby residential property owners feel that this is negatively impacting the enjoyment of their homes. There are currently no local regulations supporting the legal need for the retail operation to change.
- To find out what another party wants or to advance the case for what you want but do not currently have (different from the previous example because a disagreement is not the starting point). Example: A real estate investor wants to explore what it would take to buy a parcel of vacant land that is not currently being offered for sale.
- To establish a legal and communication framework for issues that recur on a periodic basis such as renewing contracts and labor agreements. Example: A bank currently has the naming rights to a sports facility for an initial 20-year period.
One More Thing: The Cost Reduction Potential Will Surprise You
In my experience, the most under-used aspect of negotiating is employing it to reduce costs. The process of buying a car is an exception to this observation, in part because the need to negotiate has been well-publicized for this activity.
I consistently see at least eight (8) areas in which small businesses could (and should) negotiate to help themselves quickly in reducing costs. Here are four examples:
- Manufacturing costs and supplier agreements
- Utility costs
- Refinancing of business loans
- Credit card processing fees
Financial Benefits of Negotiating
As I noted above, cost reduction is one of the primary reasons to negotiate. But even when the primary negotiating goal does not involve reducing costs, there are almost always financial advantages (and disadvantages) at stake. This is why Roger Dawson made the following observation:
You will never make more money than when you are negotiating.— Roger Dawson
© 2012 Stephen Bush