When Melanie Heenan needed $15,000 to start an upscale lingerie store, she went straight to her husband's banking manager.
Shortly after opening her business and developing her own relationship with the banker, Royal Bank of Canada transferred him to another division and someone else was assigned to liaise with Ms. Heenan.
But that relationship was strained from the beginning and significantly affected her business.
She then wrote to RBC's president, threatened to take her business elsewhere and was quickly assigned new account managers -- two women around her age, whom she developed a great rapport with. They visited her store, became engaged in her business and even made purchases for themselves.
"I feel like I can talk one on one with them . . . I have since bought a building, borrowed money, and haven't had any problems," said Ms. Heenan, owner of Toronto's Melmira Bra Boutique Inc. and Melmira Swimsuits Inc.
Her experience is not unique. Experts agree that developing a strong relationship with a bank should be a top priority of small and medium-sized enterprise (SME) owners because it can help with crucial issues such as securing financing, lowering borrowing rates and dealing with potential cash crises.
"If your bank manger doesn't understand you . . . the bank should be able to find you someone that you can work with," Ms. Heenan said. "I think a lot of businesses have been destroyed because of the wrong chemistry."
Jason Safar, an adviser with PricewaterhouseCoopers, agrees that having a solid relationship with an account manager is important. He recommends that entrepreneurs use someone they know or that a trusted friend or family member has worked with before.
"If you have some kind of connection to the banker . . . it always makes things a little smoother. At least you don't have to deal with that trust issue off the top."
But what if you don't have that connection? The Canadian Federation of Independent Business (CFIB) says going to your local branch and pitching your idea may not be the best strategy. It recommends doing an informal survey of similar-sized businesses in the same sector to narrow down a search to a few prospective account managers.
Arrive at appointments armed with a list of hard-hitting questions to get information about things such as how many small businesses they have in their portfolio and what types of businesses they serve; their approach to evaluating loan requests; whether the manager has the authority to approve loans or whether that's done at head office; the banker's background and experience; and who will handle the account.
Once a financial institution and account manager are chosen, the next step is to make a solid first impression to secure the financing. That, according to Mr. Safar, can be accomplished with an exceptional business plan.
He encourages people to be over-prepared when heading into meetings with banks. That means thoroughly explaining revenue projections, goals, supply agreements, potential customers and market conditions.
"You really have to do your homework beforehand," he said.
Jacques Lemoine, senior vice-president of Ontario operations for the Business Development Bank of Canada (BDC), also emphasized the importance of a thorough business plan. The agency is the Crown corporation responsible for providing SMEs with financing, consulting and venture capital.
He said banks need to know what the long- and short-term benefits of the proposed financing package are and that the entrepreneur is committed to the company. "I want to see passion about what they're doing," he said. "It's more than a transaction, it's a way of life."
For Ms. Heenan, being frank about her operating environment (discussing market trends and seasonal sales) has been a key part of her relationship with RBC. "If they [account managers] get nervous, it makes them difficult to work with," she said. "If you just stay up front with them and be one step ahead of them, you'll be a lot better off when it comes to negotiating."
Here are some tips from the CFIB about dealing with banks: CFIB:
Be prepared to negotiate terms on loans.
If a loan application is declined, have it reviewed by head office.
Keep your banker up to date about the company's financial status, including changes to market conditions or the possibility that sales may not meet projections.
Read loan agreements very carefully, understand the company's payment obligations and the bank's right to seize collateral if loans go into default.
Most banks will initially require SMEs to personally guarantee loans. Try to have that clause removed as your relationship with the bank strengthens.
Always pay loans as agreed or before they come due.
© The Globe and Mail
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