Banking Etiquette

Banks have gotten a bad rap over the past year or so.  But in truth, they are the linchpin of our financial livelihood as entrepreneurs.  If you accept credit cards, you need a bank.  If you pay payroll taxes, you need a bank.  If you want to pay your employees using direct deposit (or even the quaint paycheck), you need a bank.  Most vendors still require that you pay them using a check.

Banks also can provide loans for businesses.  These can be asset based loans, lines of credit, mortgages, long and short term.  And this is where businesses can get into trouble.

While most business owners think of their checking accounts and loan accounts as separate entities, the banks do not.  So if you have missed a couple of payments or have just exceeded your loan covenants, the bank can, without warning, clear out your accounts to fulfill the terms of your loan agreements.  And if you have a personal guarantee, they can tap into any personal accounts you might have at the same institution.  Talk about a kick to the head…

I have a few suggestions to try to make this less of a potential issue for you:

  1. Build a good relationship with your banker.  Meet quarterly with him or her.  Take them into your business and explain what goes on.  For sure, tell them the good news when you sign a big deal, but just as critically, let them know when things aren’t going so well.  The more you communicate with them the better you will be.
  2. Don’t put all your eggs in one basket.  Keep your personal accounts at a separate bank.  Keep transactional money at the primary bank, but keep other long term cash somewhere else.
  3. Understand your loan covenants.
  4. If you don’t hear from your banker, or they don’t return your calls, don’t consider this a good thing.  The last time I heard about the money transferring process was 2 weeks after hearing “Oh yeah, I haven’t heard from my banker at BigBank in 6 months.  I’m guessing that they have forgotten about us.  They must have bigger fish to fry.”

When this happens, everyone gets upset at the bank.  How could they do this?  In reality, the bank is just trying to forestall the worst outcome for the bank, a complete loss of the capital that they have provided to the customer. They figure something is better than nothing.  And the entrepreneur needs to understand that that is a potential outcome of the deal that they made when they accepted the cash.

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