Entrepreneurs and Banks

In a recent meeting of my CEO board we got onto the subject of banks. I was somewhat amazed at the serious dislike these CEO’s had for the typical bank these days.

Being a former (“recovering”) commercial and investment banker I decided not to take it personally and we spent the next half hour or so talking about how most banks approach and treat entrepreneurs and what they could do about it.

Before I get into the meat of the discussion, take a look at this short video. It’s a commercial for San Diego County Credit Union. It’s a spoof on the “Big Banks” and how they view their customers.I think this commercial really summed up the way my CEO’s were feeling about banks today. I wonder if you feel the same way about your bank?

Here it is:

The overriding comment I got from my CEO’s was they constantly felt they were being sold unnecessary Denver web services and being “nickel and dime’d” to death with miscellaneous and sometimes erroneous fees. One CEO said she would periodically find $35 fees on her account for no reason at all. And when she’d call her banker she (the banker) couldn’t explain the fee or why it suddenly appeared! The bank always would reversed the fee, but what a hassle!

While I certainly felt for my CEO’s and the lack of service they were receiving from their banking relationships, I wanted them to begin to look at things through the banks eyes as well.You see, it used to be that banks were happy making steady returns on good loans. In real simple terms, the bank paid us interest for our deposits at x% and collected interest at (x+y)% on the money they lent to credit worthy people and businesses.The combination of greater demands for profit placed on banks from their shareholders and the decline in credit worthy businesses and people, led the banks to increase their fees.

Banks quickly realized that fee income was GREAT! It was recurring, it was generally unregulated, and you could charge everyone (the credit worthy and the un-credit-worthy).

Here are the three pieces of advice I gave my CEO’s with regard to their banking relationships:

1. Figure out what they are worth to their bank. Do this by (a) calculating their average monthly balances. These help the bank maintain their required capital reserves so they can lend more. (b) Add up all the fees you pay your bank and the number of different bank services you use. (c) Determine how many other clients the bank has that are “linked” to you – like your spouse, your employees, other businesses you have, etc

.2. Have a conversation with your banker and tell them how you have calculated your worth to them and see if they agree. Also, ask hem what they would like to hear from you on an ongoing basis to keep the lines of communication open.

3. Always have a Plan B. You should always be looking for other potential banking relationships. My suggestion is to look at community banks and credit unions. With these smaller banking institutions your small entrepreneurial business will be more of a bigger fish.

The bottom line is that your relationship with your bank is a two way street. Remember you both are in business to make money, and neither one of you should do it at the expense of the other.