Boston Business Journal

Keep your commercial banker close in trying times

by Robert Connolly
May 16, 2008

Surprising your commercial banker is never a good business strategy in any economy. Particularly in today's difficult economic climate, your commercial banker should not be the last to learn of your business woes.

Very much to the contrary, your commercial banker should be viewed as a trusted adviser who can help weather the tough times. When it comes to your commercial banking relationship, the fewer surprises you spring, the better.

When your business is not going according to plan, it is natural to gloss over problems that at the time may appear insignificant and to put off those more pressing issues until another day. Not only is this not the best business practice, but such procrastination can severely hinder the long-term viability of your business.

When it comes to your commercial banking relationship, it is wise to keep your banker constantly informed, especially during trying times. Notify your commercial banker about the details of any material changes in operations -- whether such change results from increased costs, stretching the trade, or not meeting projections previously submitted to the bank.

It is especially critical to notify your banker if there is any decrease in the likelihood of the collectability of your accounts. Your commercial banker in return may be more inclined to issue a written waiver letter for covenant defaults -- whether financial or otherwise, if appropriate -- or discuss resetting your existing covenants to reflect your current financial condition and future prospects.

There are many benefits for being open and direct with your commercial banker.

One such benefit is the ability to build upon your commercial banker's vast network of business professionals, including accountants, attorneys, merger and acquisition advisers, mezzanine lenders, venture capitalists and turnaround consultants. Commercial bankers spend a great deal of time and resources maintaining and growing their rolodex of referrals.

Because commercial bankers enjoy a diverse customer base and a vast network of referrals, they are often at the forefront of developments that can affect your business, such as a change in generally accepted accounting principles, a new method of outsourcing business or a new program for conducting business through e-commerce.

Another benefit is the ability of your commercial banker to work with your business in the early stages of a financial crisis to revise and perhaps recast a business plan and projections that are more suitable to the recent change in your specific situation or the business climate.

A third benefit is the ability of your commercial banker to offer a forbearance or restructuring arrangement that may be more advantageous than the alternative -- for instance a liquidation, foreclosure or a bankruptcy filing.

Your relationship with your bank can yield substantial benefits if you view your commercial banker as a trusted business adviser, one who will maintain a true understanding of your business needs and an industry perspective.

Your commercial banker is committed to knowing your business inside out in order to be able to address your complete financial needs adequately, quickly and expertly.

Your commercial banker, if properly informed, is able to provide you with solid business advice beyond the scope of any immediate financial need to assist you in sustaining and growing your business. Therefore, it is prudent to view your commercial banker as a long term business consultant.

Nobody likes to be the bearer of potentially bad news. But in an unsettled economy, being upfront with your banker is key, whether the news you share is good or bad. You may be surprised by the range of advice that your commercial banker can offer if given the opportunity and the time to react to the situation.

Robert Connolly is a member of the Banking and Commercial Real Estate Departments at the Boston law firm of Ruberto, Israel & Weiner PC.