In a soft economy, companies want to know if they can count on their bank's support.
Asking these 5 questions will dispel any doubt:
1. "Are you satisfied with the profitability of my account?"
Over the last decade consultants have attuned their bank clients to the importance of knowing the relative profitability of their customers. The 80/20 Rule is evident at most banks.
Some refer to those 20 percent of accounts that generate 80 percent of their profits as HVC's---bankerspeak for high-value clients---and earmark them for exceptional levels of attention and service.
But even if you're certain your company is an HVC, do not expect to hear effusive appreciation for your relationship's profitability. After all, do you reveal to your most important accounts how lucrative they are?
If your bankers are not enjoying an acceptable level of return on your account, however, they will gladly seize this opportunity to enlighten you. Ask them what additional services would most help boost their revenue and yields.
Don't be surprised if their answer is more deposits and fee services, instead of a higher borrowing level. Remember: banks are in business to make money, not just to make loans.
2. "How does my company compare with others in my industry?"
Regulators review concentrations of credit risk in bank portfolios on several bases. The most important are by industry, geography, and loan type. This means bankers monitor their exposure to your industry and rank their borrowers by creditworthiness. Their logic is sound. Underperforming borrowers in good times suffer first and most when the economy slides. Many banks have developed analytical tools to rank their borrowers.
They also rely on the Statement Studies published annually by The Risk Management Association (RMA) of Philadelphia. Each year commercial banks send financial statements for 150,000 customers (sans their names) to RMA.
The organization tabulates the data into six geographic regions and 600 industry groups. These results enable bank credit departments to contrast your company's performance with your industry competitors.
Your company's relative creditworthiness is the most critical determinant of how borrowing requests will be treated in challenging economic times. It even carries more weight than your account's profitability.
3. "How much credit exposure do you have to my industry?"
Banks know to the penny the answer to this question, and your account officer should be comfortable giving you at least a rounded number in response.
The answer, however, only provides a snapshot when what you really need is a video. The total amount of credit exposure to your industry is one valuable data point.
More important is knowing if your bank has been increasing its exposure. And most important is learning whether your industry is the subject of an internal review.
When banks have set exposure limits in previous economic cycles their first step was always an internal industry review.
Even if additional commitments to your industry are placed on allocation, all is not lost. You merely need to present a more compelling story than your industry competitors.
4. "Which Bank Officers do I need to know better?"
A great way to differentiate your company is by ensuring all the bankers involved in the decision to lend you money know you and your management team.
If they cannot associate faces and personalities with your company's name, then their answers will be "in full compliance with current credit policy guidelines." This translates into no consideration being given to your unique circumstances and abilities.
Ask your banker if everyone in the chain of command understands your industry's challenges.
Then be sure you know executives in each department providing you significant services so they will be your advocate. Borrowers today cannot have too many supporters at their banks.
5. "How much debt do you think my company could prudently carry?"
Inquire about your banks' appetite for your credit, if you have loans outstanding or not. If you are borrowing, ask it this way: "How much more would you lend me at the same interest rate, terms, conditions and collateral as my present loans?" The answer can be revealing.
If you are not a borrower today, then it is the day to signal you could be in the future. Having your company's creditworthiness evaluated prior to needing money will oil the bank's credit machinery on your behalf. The result: better responsiveness when you decide to borrow.
Action Step:
Though many companies struggle in a soft economy, those that are prepared can capitalize on the opportunities that arise, such as buying a weakened competitor. Being certain of your bank's support provides the confidence to seek out such opportunities.
Get your bankers working on their answers to these questions. It's your first step toward being prepared.
