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Professional Banking Relationships Are Encouraged

Capitalizing on Relationships. In a New York Times essay, Postrel considers whether open markets are threatened more by a pro-business or an antibusiness ideology, contending that relationship capitalism is a closed system that limits competition. [Fast Company Now]

Capital relationships are built on the character of all the parties involved. A certain level of trust is required to assure the terms of any agreement will be kept. Professional banking relationships do not threaten competition and are strongly encouraged.

Postrel's concerns that lending partially on banking relationships is a closed system doesn't address how easy it is to create a new relationship with any bank. A relationship between a banker and a borrower denotes trust that can be earned by a company willing to demonstrate its value to the bank.

For any company to get on the favor end of a banking relationships, they just need to make regular deposits and run a financially sound operation. Banks are in the business to make money (literally), plant the seeds of a new relationship by showing them with your numbers that you'll make them money. You don't have to go to their golf club or have your kids on the same soccer team, just create a financially sound place for the bank to put their money.

Banking is a low risk endeavor, bankers want to know who they are dealing with to be sure they get a return on their investment. In the absence of a relationship all they really have is cold numbers, credit ratings, and accounting statements that lend little or no credibility. A strong relationship removes doubt from a good investment, it's tangible.

Since banks are concerned with risk, they often limit their loans to companies to which they are not familiar. You have to make yourself known to the bank through your community, marketing, and public relations efforts. It doesn't hurt to get an introduction by someone who the banker respects and who also thinks you're a good investment.

Relationships often reduce risks by saying, "Don't you ever fail me or make me look bad?" A certain level of trust is required to have any relationship, when a bank knows you personally they gain a basis to support trusting you with the banks money. People with strong relationships don't break promises, don't take risks that can harm the relationship, and always seek a win-win situation.

You probably won't ever get a loan (or line of credit) on just a handshake, someone is going to look at your numbers. Unlike a larger bank, some locally owned banks can take a bit more risk with people they know. Branches with larger banks are responsible to outside decision makers, so a relationships may be more analytically measured, but most banks have local funds they can invest as they please.

There is a certain rite of passage all executives must walk before they are accepted by their financial institution. Like any business relationships, it's entirely worth the time invested. Your banker is a great resource, make ever effort to be a valuable resource to them.

/ business-success | earning-trust /

By Justin Hitt at December 5, 2003 1:53 PM  Subscribe in a reader

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