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If
you ever want to catalyze a discussion at cocktails, simply
ask the attendees to comment upon their relationship with
their banker. Quite probably, there will be little, if any,
complimentary words offered.
I
am not rushing to judgment by stating the foregoing. Of course
there are many good bankers, but the banks themselves leave
much to be desired. This is true from the perspective of both
the consumer and the business owner.
Although
the economy has continued to expand, credit remains tight
and in some industries, all but impossible to get. As a corporate
commercial lawyer, I offer the following recommendations:
- Always shop around. This may
seem obvious, but in most circumstances your existing bank
will offer you less favorable terms than a competitor.
- Never, and I mean never, use
your revolving credit facility to make a capital purchase.
I routinely seen bankers recommend that their
customers purchase capital equipment
through their revolving credit facility. Months
later, when the credit line is at its limit,
the banker will be looking for an injection of
equity from the owner. This position will be
taken although the banker himself created the
situation.
- Consult with other institutional
lenders if considering the purchase of capital assets or
commercial property. Banks are often unwilling
to consider financing commercial properties.
Approach the Business Development Bank of Canada
which may be prepared to look at your
capital acquisition.
- Spread your business around.
Bankers will likely push hard for you to consolidate your
business with them. Resist.
If
you run into financial difficulty, all of your banking relationships
will be imperiled if you are dealing with one institution.
Moreover, the day when your relationship with your banker
mattered is over. Even if you are lucky to cultivate a relationship,
your banker will not be with you for long.
-
Consult with a financial intermediary. Although mortgage and
loan brokers may have a bad name, although perhaps not as
bad as lawyers, they may be able to obtain better financial
terms than you can on your own.
- Avoid a shotgun approach to obtaining credit. Banks now
rely upon crude scoring methods and each credit inquiry will
count against you.
- Recognize that the time when all that mattered was whether
or not you would repay the loan is dead. Try to fit in the
box that the bank wants. If the choice is between deferring
income and obtaining a loan, be prepared to recognize the
income in order to obtain the financing. The foregoing represents
the views of the author and is not intended to represent the
views of the firm or this magazine.
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