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Five Ways Manufacturers Can Create Better Banking Relationships

Five Ways Manufacturers Can Create Better Banking Relationships

From inventory management to equipment purchases to slow payments from customers, many factors can impact a manufacturer’s cash flows as well as its ability to grow. It’s also why developing a strong relationship with the right bank can be vital to operating a successful business today and in the future. Doing so can result in a host of benefits, not the least of which is the ability to secure working capital and create a path to easier loan renewals.  

Whether your organization is looking for a new banking partner or to improve the banking relationship that already exists, it’s important to consider both sides of the partnership. These fundamental tips can help create and sustain the right fit:

  1. Consider what bankers are looking for in their loan customers. Just as you seek a partnership fit that can support your manufacturing objectives, banks are seeking business customers that fit their service model. That starts with customers that reflect the three “Cs”: character, capacity, and collateral. Banks are interested in the character of the customer from the business’s credit history, its capacity to handle debt and repay it, and naturally, the collateral it holds. Be prepared to manage your risk profile and maintain those essential “Cs.”
  2. Find banks that focus on your industry, your size, and even your segment. Not all financial institutions have experience in serving the manufacturing and distribution industry or are comfortable doing so. In fact, banks will often have a preference for the types of industries and segments they serve, as well as the types of loans they offer. By choosing a banking partner that already understands the nuances, trends, and cycles of your industry and “speaks your language,” you’ll be ahead of the game. Instead of learning about your operations and questioning your business decisions, your bank can jump right into supporting you, offering up new ideas, and helping you grow.
  3. Prepare to share your plan. You want a relationship that goes beyond a simple business loan to include strategic planning and support for your short- and long-term goals. By sharing your business plan, business model, and information about your sales channels, you give your bank the opportunity to become a true partner while ensuring your viability to become theirs. And when your growth develops in new directions and your business plans change, be sure to keep your bank informed of your new objectives and expectations.
  4. Be proactive and forthcoming. Sharing timely and accurate information is critical to a successful and trusting partnership and helps to develop a good relationship before it’s needed. Make sure your financial statements are in order. Know your covenants, and notify your bank as soon as you believe there could be problems. Whenever issues or new needs arise, it’s always better to communicate early and often to avoid unwanted surprises.
  5. Shape and tell a compelling story. Whether a manufacturer is a startup or an established business, conveying a captivating story about your company and its vision is crucial. Share insights with potential banking partners on how you reached this point, and outline plans for where the company is headed. Talk about past results and future trends. Remember, the financials tell only half the story; the rest of the story comes from personal passion and professional commitment.

Following these five steps can start you on the path to a more constructive and more fruitful relationship with the right lender. In addition, the more financially savvy and aware you can become, the greater the loan confidence you’ll generate. Your accountant can play a helpful role in building your financial knowledge and bridging communication gaps between you and sound lenders.


Author(s)

Paul Barstad
Paul Barstad, CPA
Partner
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