Perhaps one of your New Year’s resolutions is to find a new bank for your credit.

Sometimes the best solution is within.  Find a better way to work with your current bank.  See how you can restructure your loan.  Strengthen whatever else needs fixing in your relationship.  They may not be the best bank for you, but this is a tough market.  As Crosby, Stills & Nash once put it- “Love the One You’re With.”

Still, maybe your bank isn’t really a good fit.  You decide you want to see what else is out there. 

Like many things in life, how you go about it can make all the difference.  Fumble the process and even a credit-worthy business gets shut out.  Here are some mistakes to watch out for:

1. Waiting.  It sounds reasonable.  Wait for the market to get better.  Wait for our results to improve.  One problem- the market does not care when you are ready- it will move on its own timetable.  True, there have been terrible times in the market like 2009.  But while some companies waited it out, terrible things happened.  Some banks had to tighten their reserves.  Some told some clients to find another bank.  In other cases, they tightened covenants, charged renewal fees and raised rates.  The bad economy didn’t help client performance either- pushing some into non-performing (missing payments) or out of compliance (missing covenants) buckets.  The point is, even when the market is terrible, you may not have the option of riding out the storm.  Better to look early on your terms, while you have a lot more time, as painful as the market is.

2. Drips and Drabs.  Here’s the thinking behind this approach.  All you need is one bank, unless it is a very large credit that will be syndicated.  Besides, we don’t want our information all over the street.  So let’s just go out and approach a couple banks, see how it goes.  If we need to, we can then go out to a couple more later.  There are several reasons this does not work:

a. You tie up a lot of time in the process.  It could take a half year or more to go to market this way.  You tie up a lot of management time, pulling you away from the business.  

b. The market could change.  If you started this in the summer of 2008, you were barely into getting out into the street when the market slammed shut.  

c. The banks could change.  That loan officer you had been in touch with could be gone.  Their credit policy could tighten.  Your type of loan may fall out of favor.  I even saw one time when a bank that was approached later showed interest in lending to a client, but then the bank did an acquisition.  The minimum level for a new credit rose 50%, above what the client was looking for.

d. The package gets stale.  Numbers that were current for the first couple banks are out of date by the time bank #12 is approached 6 months later.  Either a lot of time is tied up continually redoing the financials and forecast, or you go out with dated information.

e. Which one to pick first.  Your full time job is not raising bank loans.  You are not close enough to the market to pick the one or two who are most likely.  The bank who ends up dancing with you could be one way back on your list.  

Better to decide on a list of the banks and approach them all at once.

3. Chasing the Banks.  My sales coach would call this “Show Up and Throw Up”.  You bring the bank in, do a big tour, put up some impressive PowerPoint’s, and give them the works.  This makes you the hunter.  Better off the other way around- make them come after you.  Have them explain why they are interested in you and why they should be one of just two or three that get in to see the big show.

4. Polishing the Car.  The bank package gets them interested, but does not get you the loan.  Nobody goes to committee just based on the package.  Nor is there ever a perfect bank package.  No matter how good a package you have, the banks will always have additional questions you never thought of.  It is similar to a resume for an executive in transition.  He wants it to be good, but nobody gets hired just based on the resume.  Losing a couple extra months getting the package together could be a killer- that’s enough time for the market to turn against you.

5. Forgetting the Treasury Side.  You are most likely wanting to change banks to change your loans.  Yet the bank may make significant, if not more money, from the treasury services to your company and employees.  Treasury can turn lukewarm interest into very serious interest.  It can improve the bank income statement on your account enough to get the approval over the top.  Remember to talk about this in your bank package and your in-house presentations.

6. Ignoring Your Risks.  The financial markets are driven by risk versus return.  The higher the perceived risk, the higher the rates and terms.  When the risk gets too high for that type of bank, there is no deal.  The company may have to look at more expensive resources.  Notice I said perceived risk.  Without any further knowledge and comfort, the bank will be biased to perceive more risk than less risk.  Even thought a company with high growth prospects can be more appealing to an equity investor (who by nature is looking for more risk than a bank), it can be too risky to a bank.  Stability can trump volatility.  So rather than talking about your great growth prospects, you may be better off talking about how predictable your results are.  I had a leasing client change their bank package to talk about the predictability of their revenues, backed up by strong data and compelling charts.

7. Fishing in the Wrong Pond.  Banks are not all things to all companies.  Each bank has their niche.  There is no point in going after a bank that does not fit in the first place.  Know their broad criteria before you add them to your list.  Consider:

a. Type of credit- Cash flow, asset based, real estate, other

b. Size- minimum, maximum size of credit

c. Industries- what industries do they not lend to

d. Geographic- where do they lend, where does their treasury cover

Thinking about going to market?  Generally don’t wait. Get a good package ready, but don’t beat it to death.  Come with the full list of banks you want to approach, based on ones that fit you.  Approach all on your list and make them chase you- have them request the package.  Narrow it down to a shorter list based on their review and response to the package.

Run the process well and you have a better chance of finding the right bank, getting better terms and save your management a lot of time.  Take control of the process or else the market will take control of you.