Banking Relationships: How and Why?

A bank can be a lifeline when times get tough for your business, but it may be difficult to get a loan if the bank doesn’t know you or trust you. Building that trust can be the difference between rejection or a line of credit. Having a banking relationship is just good for business.

If you are a woman or a person of color, having a banking relationship should be prioritized. In the first round of the 2020 Paycheck Protection Program, business owners that did not have a previous banking relationship were shut out of accessing funding. 

On February 3, 2021, Heidi Sheppard, Project Director for the DC Women’s Business Center, moderated the panel, Banking Relationships: How and Why? with Kristina Sicard, Assistant Vice President Business Relationship Manager at JPMorgan Chase & Co., and Omar Velasco, Director of Small Business Development and Lending at the Latino Economic Development Center.

Here is what you need to know about banking relationships:

• The steps to start a relationship with a bank: Picking a bank should be an interview process, just like picking a lawyer. Pick three banks and interview them.
  • Do your research, find out what products they offer and ask questions. Make sure they are knowledgeable, engaging, trustworthy and willing to work with you.
  • Look for mutual respect, did they follow up with you? Your banker should not just be a money source, but a human resource.
  • Choose a community development financial institution or local small bank as they may have more time and will be able to process your application quicker than a traditional bank. They are usually aware of local issues and are focused on community lending. 

• How a banking relationship may benefit small businesses: Businesses that did have a relationship with a bank, but not a lending relationship through a credit card or other loan, were not able to apply for the first round of the Paycheck Protection Program.
  • Business owners who do not have a lending relationship but have a pressing need for funding may find it difficult to get a line of credit or loan in a timely manner. Credit and trustworthiness are the biggest factors when obtaining a credit line with a bank.

• The types of documents needed to start a relationship with a lender:
  • Business operating agreements, two forms of ID with proof of address, business plans,  financial bank statements, budgets, proof of cash flow, assets and liability can help bankers calculate how much debt your business can afford or how much you need to budget.
  • Tax returns show that you are in good standing with the IRS and they overrule any discrepancy in your financials. It may be a red flag if the numbers are not aligned.

• The ongoing interactions that a small business should undertake in order to maintain the relationship:
  • Meet with your banker at least once a quarter depending on your goals.
  • “I reach out to my clients at least once every 60 days,” said Kristina Sicard from Chase Bank. If you are in an aggressive year with aggressive goals – maybe one a month, twice a year? A phone call is just as good as in person.”
  • Nurture the relationship with your banker, tell them about your business growth and challenges you are facing. Be a good partner and refer other businesses to your banker. 

• Other ways a bank can help small businesses:
  • If you are having issues in obtaining a business loan because of poor credit, a bank can offer credit building products.
  • “The Latino Economic Development Center offers a $1,000 loan to build your credit,” said Omar Velasco from LEDC.
  • Check out the Latino Economic Development Center’s credit building CREDIFIRST loan for more information and considerations.
  • A 0% interest credit card is a great cash flow tool to help out with expenses. The credit line may be smaller, but it is a starting place to build rapport and credit.
  • Check BankRate or NerdWallet for credit card comparisons and ratings.
  • Life insurance and other business products can also be purchased from a bank. They can assist with money management, credit counseling, payroll and other payments.

• Initiating a banking relationship with little to no income or being within your first year of business:
  • Start a relationship, it is the start of a strategy. It is always best to start soon and talk later about the opportunity for growth. Lean in! Do not shy away!

• What else should entrepreneurs know?
  • A banker should not try to sell you products but find out what you need so that they can support you and your small business.
  • A banker is part of your support team. Find one that you trust and nurture that relationship.

If you believe you have experienced discrimination in accessing capital or you want to know more about your rights under the Consumer Credit Protection Act, you can submit a complaint with the Consumer Federal Protection Bureau or reach out to the National Community Reinvestment Coalition for guidance. 

If you have additional questions about building banking relationships for your small business, you can contact the DC Women’s Business Center and schedule a one-on-one counseling session with a small business counselor, here. 

The DC Women’s Business Center is funded in part by the Small Business Administration and supported by the National Community Reinvestment Coalition. The DC WBC is a small business development organization focused on empowering women entrepreneurs in the DMV region.

Heidi Sheppard is the Project Director for the DC WBC.

Monti Taylor is the Resource Coordinator for the DC WBC.

Photo from Piqsels