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How to Choose the Right Banking Relationship

Author: Larry Chester

By this time, you are well on the road to executing your strategic plan for this year. Odds are you spent significant time putting together your goals and aspirations for yourself and your business at the end of the previous year.

This strategic plan includes evaluating your client relationships: Do they fit into your business model? Are they time-consuming? Are they as profitable as they can be?

Business owners should also evaluate their banking relationship, as this can have a profound impact on their ability to execute that strategic plan. Banks play an important role by providing working capital, equipment financing, and real estate acquisition financing, which helps continue driving economic growth.

How do you choose the right banking relationship for your business?

Evaluating Your Relationships

You should always be evaluating your clients to see if they are still well suited to your business. Similarly, you should evaluate your relationships with your suppliers, which includes your bank.

The banking industry continues to evolve. The consolidation that has recently occurred in the industry has impacted many businesses (and is expected to continue). However, it isn’t only consolidation that can impact your banking relationship.

Reasons Your Banking Relationship Might Change

Here are some reasons your banking relationship might change:


Your bank has been purchased by or has purchased other mid-sized banks in your market.


Your bank has decided to make a bigger splash in your market and has loosened its requirements. Or, worse, they had a difficult year last year and are tightening up controls.

Business Climate

The federal reserve bank has made some moves to raise interest rates or increase collateral requirements.

Your Business Results

You’ve had a few bad years, and now the bank isn’t as happy with you as they used to be. Is it time to move?

Elements that Affect Your Banking Relationship

Moreover, here are some things that banks can do to improve your relationship or make it more difficult. (Some of these may push you to find a new bank, but more on that later).

Relationship Managers

Your relationship with your RM (Relationship Manager) can positively or negatively affect your banking relationship. If they’re available when you call, that’s a good thing. However, if they’re calling you twice a week to see how things are going, this might be a sign that they’re giving you more scrutiny.

Change in Loan Covenants

Not every bank loan has covenants.

A covenant is a financial test that gives the bank a quick view of how your company is doing. Your banking relationship can change if your bank is suddenly adding covenants to your reporting. For example:

  • EBITDA thresholds
  • Debt service ratio
  • Tangible net worth
  • Dividend payout ratio
  • Debt/equity
  • Fixed-charge coverage
  • Or, if they are tightening those requirements

Borrowing Base Certificates (BBC)

You suddenly have to start filling out a borrowing base certificate on a regular basis. Or, the bank has decided to have you fill out your BBC weekly, rather than monthly.

Advance Rates

Advance rates that your bank has given you on your BBC have changed—they’ve gotten smaller. For example, instead of allowing you to borrow on 80% of your accounts receivable (AR), they are now only giving you 60%.

Personal Guarantee

The bank has requested a personal guarantee or has increased the guarantee that is already part of your loan.

Reasons Why You Might Consider Switching Banks

There are other reasons why you might consider looking for a different bank. Some of which include:

  • Your business needs have changed. You need access to a bigger line, and your current bank isn’t comfortable loaning you more money, or the loan processing timeframe just seems to be getting longer and longer.
  • A move into international business looks interesting, and your bank doesn’t have a direct international relationship.
  • An SBA loan looks promising to fund your expansion, but your current bank doesn’t provide many SBA loans.
  • You haven’t looked at the banking market for five years, and you’re concerned that you’re not getting the best deal with your bank anymore.
  • You aren’t taking advantage of the security or processing that some banks are providing as part of modern treasury management.How to Choose the Right Banking Relationship

A Final Word

Banking relationships are complex but are a critical part of the way you run your business. The bank that you used to start your business may not be the bank you need today. For example, you may need greater access to funds or a bank that can be more flexible if your business is changing rapidly.

At CFO Simplified, we recommend you take the time to talk to other banks. You might be pleasantly surprised about what they can provide you and the way your account will be managed—and that’s a good thing.

Interested in more information on banking relationships? Read on for eight steps to keeping your bank happy.


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