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Multiple Banking Relationships

Posted by: Rod Kurtz on October 15, 2009

Even though news headlines indicate the economy is subtly improving, an important lesson learned by everyone from large to small business over the past year is the need to have strong banking relationships. Few businesses operate without some form of banking finance. Until liquidity is restored, the need to have multiple banking relationships is prudent to assure that businesses have adequate capital to operate.

Worries about the stability of banks have heightened since the Federal Deposit Insurance Corp. said recently its list of problem banks rose to more than 400, the highest level since June 1994. Presumably, the majority of these banks are local and regional banks, which are suffering due to large concentration of underperforming or nonperforming real estate loans.

Over the past year, it has been common practice by banks to reduce or eliminate relationships to shore up their balance sheets. Historically, small business owners have maintained one large relationship in order to gain better pricing on a package of services. Furthermore, these relationships tend to be with local and regional banks, the banks experiencing the majority of the problems. In an effort to protect your business, consider maintaining good relationships with multiple banks since you do not know if or when your existing bank might terminate your relationship. For example, consider maintaining basic banking needs such as depository services with one bank and longer-term lending needs with another, ideally a bank that specializes in your industry.

Leslie Thompson, CFA, CDFA, CPA
Spectrum Management Group

Reader Comments

David Wood

October 16, 2009 9:49 AM

Banks want your deposits but don't want to lend you money for your need. Congress and the regulators have gone to far.Fully conforming loans, maybe the value on todays market is high are having to be written down or reserves need to be much higher.Calling loans simply because the regulators are being heavy handed. Good loans with good people making their payments on time should be treated better than a bad loan and bad situations that are no fault of the lender or the borower.
Regulators have lost their minds, uncommon times need better solutions.

Tina Dettman-Bielefeldt

October 16, 2009 11:20 AM

It would be interesting to hear a lender's opinion on this topic. I'm not certain that a lender would be as willing to work with a small business if that business had several lenders.

Alexis Jameson

October 16, 2009 11:22 PM

Thanks for haring this useful information.
The post seems to be very interesting and very informative.
Every business man should keep this points in mind to get a
successful business.

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