Monday, August 13, 2012

Is It Time to Ditch Your Bank?

From Los Angeles Times, Business Section, July 17 2012, reprinted by permission

There's a love-hate relationship between entrepreneurs and banks. In fact, one in four small businesses changed banks in the last four years, according to a survey out this week from the National Small Business Association.

The two most popular reasons for making a move are feeling "mistreated" by a bank and seeking better financing options, according to the report from the Washington, D.C.-based small business advocacy group. In particular, small business owners are least impressed with big banks. Of those small businesses that work with big banks, only 14 percent reported the services and finance offerings as "excellent." At the same time, 43 percent of respondents who work with community banks and 38 percent who use credit unions rate their respective banks as excellent in the same areas.

To be sure, it's a hassle to switch banks, but sometimes it is worth it. Here are three signs you need to make a change:

1. Abrupt changes in financing terms. "If their credit line gets cut or interest rates rise unexpectedly, I think that is pretty telling," says John Paglia, a professor at Pepperdine University's business school. Almost one in four business owners have seen the terms on their loan become worse in the past year, according to the NSBA survey. Some were given no reason, while others were told their business had become more risky or banking standards had been raised. Meanwhile, 29 percent of survey respondents reported having their available line of credit reduced in the last four years.

Whether you're securing a loan or line of credit, be sure to read all of the fine print, keeping an eagle eye for language suggesting the bank can change your loan terms based on "changing market risk," or other vagaries, Paglia warns.

2. Your bank can't keep up with you. "If the bank doesn't have what you need at the next stage of your growth, then you need to look elsewhere," says Bob Seiwert, head of the American Bankers Association's Center for Commercial Lending and Business Ranking. For example, every bank has a cap on what they can lend out at any one time and a limit on what they can lend out to any one firm. "If you need a lot more money than that banker is comfortable lending to any one business," says Seiwert, "that is a sign that you have outgrown your bank" You may also need additional financial services as your business evolves.

3. Your banker doesn't talk to you. "Not all business owners are financially savvy from the day they open their doors," says Terry Jorde, the Senior Executive Vice President and Chief of Staff at the Independent Community Bankers of America. You deserve a banker that is willing to sit down with you, talk to you, listen to your business plan, and really learn about the business you are running. The banker "should be there to guide them through the process," Jorde says. And if you have to continually "re-educate" your bank about your business, she says that is a pretty good indication that you should be looking for another bank.

Once you have decided that your current bank is no longer serving your needs, talk to other businesses in your community about which bank they use, adds Paglia. If you are looking for a smaller bank, the BankLocally website has a zip-code look-up for community banks.