Why a Relationship is as Important as the Rate when Searching for Business Financing

By Margaret A. Capper, North Shore Bank

9/20/2018 10:41:22 AM
Why a Relationship is as Important as the Rate when Searching for Business FinancingIt’s an exciting time for your company. You’ve built a strong business, with loyal, satisfied customers, a great reputation and a solid team. Now comes opportunity for growth – by acquiring or merging with another business that both complements and brings new ideas to your own.
Companies make a lot of important decisions during the acquisition process, and one of the first is choosing the institution to finance the transaction. Some buyers look for the lender that will get them the most money, at the lowest rate, as quickly as possible. While those are certainly criteria to consider, a more successful approach is to also evaluate who can offer the best overall banking relationship for the company.
Acquiring a business is not a linear transaction like buying a car or a 3-D printer. It’s one of the most critical decisions an entrepreneur will ever make, and the way in which a purchase or merger is structured can have significant implications on the company’s future success. This is where relationship banking comes into play – anyone can do a deal, but not everyone can do the deal that’s right for you and your business.
If your company is in the market to buy another, look for these qualities in a potential banking partner.
  • They look beyond the deal. If a prospective banking partner’s only question is how much you want to borrow, consider it a red flag. A true partner should understand your vision and goals to structure an arrangement that truly serves your company’s long-term best interests. Discussion should be robust, with lots of questions. Why this purchase? What do you see for the future? How much are you willing to pay, and for what kind of return? Lots of banks can do a deal. The right partner will help you develop a long-term strategy to first make the acquisition, and then sustain and grow the business and be successful.
  • They help you expect the unexpected. The first year after an acquisition can be a time of unpleasant surprises. Maybe your due diligence didn’t catch everything, or an expensive piece of equipment breaks down, or there are industry or economic shifts beyond your control. Rather than tie up all of a company’s capital in the transaction, a good banker structures an acquisition that leaves the business with “wiggle room” – the liquidity and cash flow necessary to address first-year challenges as they arise.
  • They’ve been there before – many times. Albert Einstein said it best: “The only source of knowledge is experience.” Bankers who have seen a lot of merger/acquisition structures and transactions in a variety of industries add value to the conversation. Experienced bankers can tell you if you’re overpaying or getting a great opportunity. They can evaluate your business assumptions and provide a gut-check as to whether your goal is achievable.
  • It’s not (just) personal – it’s business. A personal connection is important; after all, it’s the people who make any business transaction work. But a good fit has an organizational component, too. Some banks only do business in certain geographic locations, some handle only big or small transactions, some specialize in specific industries. Be the rule, not the exception – the closer your company aligns with the bank’s experience and expertise, the better your success will be.
  • They don’t let your emotions hurt your business. Any time of change can be emotional for a business owner; with mergers and acquisitions, there’s uncertainty on both sides and often an impatience to finalize the sale right away. Be wary, however, of a lender who offers to waive a lot of requirements to speed up the process. A solid banking partner respects the emotions that go into a merger or acquisition while providing objective guidance – often, a deep dive into the financials is key to making sure the deal is right for your organization in the long term. Extra time and patience up front can save a lot of headaches, and in some instances, actually save your business, down the line.
Choosing the right institution to finance your merger or acquisition is an opportunity for your company to go further than just a low rate or quick turnaround. A strong, comprehensive relationship with a knowledgeable, experienced banker who knows your company and wants to help it succeed is a benefit for any business. Those qualities are particularly valuable during a merger or acquisition, when that banker can go beyond the role of “lender” to be – along with trusted legal counsel and accounting staff – an important part of the business transition team.
Recognized for its high-touch service, creative thinking and local decision-making ability,
North Shore Bank has been helping businesses grow in Wisconsin since 1923.

Margaret A. Capper is senior vice president of commercial banking for North Shore Bank.