Matchmaker, Matchmaker, Find Me a Bank!

How to choose the best one for your small business client.

  • YOU CAN HELP YOUR SMALL BUSINESS clients find a rewarding banking relationship in a number of ways. For example, you can
    • Anticipate what the bank will want to know about your client and have the information ready.

    • Make inquiries about the bank. Check out its financials and its reputation with other customers.

    • Consider which services are most important to your client. Predict your client's needs for short- and long-term capital and what cash management or other services the client would find useful.

    • Match the client to the bank on the basis of size, lending policy, services offered and compatibility of the loan officer with the principals of the client company.

  • ALTERNATIVES TO BANKS may be better suited to your clients needs for some purposes. These alternatives include brokerage firms, credit card companies and vendor financing specialists. You also can check out the Internet for alternative financing ideas.

  • ITS ALSO IMPORTANT TO find out who will make the loan decisions at the bank. If a computer has the final say, look elsewhere. If it is someone far away, look closer to home.

  • BANK FEES ARE NEGOTIABLE. You can bargain them down for your client. Compare fee schedules and ask for competitive rates.

  • IN THIS AGE OF BANK MERGER mania, your client may want a second banking relationship. Even if the client uses the second one for limited services, it can fall back on that bank if the primary bank merges into a Goliath based light-years away.

    Justin Martin is a staff writer at Fortune magazine in New York City. He frequently writes on careers and corporate strategy. His e-mail address is

Banks and their customers get along to varying degrees. Some relationships resemble long-standing and loving marriages like that of Paul Newman and Joanne Woodward. Others are more the Bruce Willis-Demi Moore type, with constant bickering leading to breakups.

As the financial services equivalent of a marriage broker, you perform a vital service when you are able to match clients with the right banks. To do so successfully, though, you must fully understand each clients business and its needs, anticipate the measures of the clients financial performance the banks will be most interested in and know as much as possible about the lending policies, services offered and loan officers personalities at several banks.

For starters, you should make sure you know enough about the clients business, especially its cash management and capital needs. Is your clients company growing rapidly? Is it in a cyclical business? A seasonal business? What is its credit history? Is it a new company without much of a record? Has it had credit problems in the past or does it have a sterling record? What are its tangible assets? How about its risk profile and customer base? Does it have a lot of customers or only a few? How big is its payroll? A CPA needs to consider everything that might affect the clients banking needs, because he or she will in essence be acting as the CFO for the client.

Before you and your client meet with any bankers, make sure that your client has a written business plan. This should provide standard information such as market share statistics, bios of the key officers and plans for expansion, as well as financial statements, estimates of working capital and long-term capital needs for the next few years.

Of course, banks are particularly interested in financial performance. Therefore, the clients financial history is of utmost importance to the bank and should be included in the package you and your client show the bank up front. Go back at least three years if possible. To tailor the information to a banks needs you might want to include statistics provided by Robert Morris Associates, the Philadelphia-based financial information clearinghouse. Robert Morris maintains a massive database on bank loans, containing information collected from most banks and aggregated in a series called statement studies. These studies are available to companies as well as to participating banks, which often use this service to compare a company with its industry peers on measures of working capital and long-term debt leverage. You can smooth matters for your client, be a step ahead in the game and show your savvy besides by providing the bank with the Robert Morris data on your clients peer group and knowing how your client stacks up against other companies in its SIC (standard industrial classification) code. The bottom line: You want to anticipate everything and anything a bank might request and provide it at the outset.

That's certainly the tack taken by Dan DeVasto, CEO of Wolf & Co. PC, a Boston-based CPA firm with 10 owners and 45 CPAs. Before approaching a bank, he makes sure he has every relevant scrap of data on his client: a mission statement, list of products and services, outlook for the industry, description of the competition. Typically, he approaches a bank with a 15- to 25-page spiral binder detailing this information. The key is to have the banker thoroughly understand the business, says DeVasto.

To make a successful match, you also should understand as much as possible about the banks you plan to approach on behalf of the client. Most bankers network furiously, and CPAs are among the people they court most ardently because CPAs clients are a promising source of new business. Thus, the first step is easy: Sit back, wait and let the banks come to you, the CPA. Many banks hold annual get-togethers, barbecues or cocktail receptions, which provide CPAs with an opportunity to get acquainted with loan officers. We absolutely actively seek out CPAs, says Hattie Hamlin, a vice-president at Crestar Bank, a regional institution headquartered in Richmond, Virginia.

You'll want to dig much deeper, of course, when it comes time to actually match a bank and a client. As a CPA with a variety of clients, you are in a good position to check the references of banks by talking with other companies that use their services, especially companies in the same industry as your client. Ask your other clients about their relationships with their banks, what they like and what they don't like. Talk to local chambers of commerce or economic development offices to get a sense of a banks community involvement. If a banks going to check out your clients finances, its only fair to check out the banks own finances in turn.

Annual reports are a great source of information on banks, provided the banks are public institutions. Publicly held banks also file quarterly reports and other financial statements with the SEC in Washington, D.C. Information from these filings can be found in the EDGAR database on the SEC's Web site (

For private banks, the FDIC oversees banks, while the Office of Thrift Supervision oversees savings and loans and thrifts. While regulatory data filed with them is public, it can be difficult to access and interpret. Instead, try Austin-based Sheshunoff Information Services, which offers dozens of products assembling and massaging the data, including custom-tailored reports. Prices vary: A one-time paper copy of a single bank's financial statements will run $115, while quarterly CD-ROM updates on all the banks in a given state cost $825. Sheshunoff provides its own ratings on the most important measures of bank health: capital adequacy, earnings, liquidity and asset quality. Those ratings are updated quarterly. A one-time list of the Sheshunoff ratings for all banks and S&Ls in the United States runs $125, while an annual subscription is $495.

Case Study
Finding a Bank for a
Private $2.6 Million Company

A frustrated client recently approached Mark Caltagirone, CPA, manager of the corporate finance group for Beard & Co., a 120-person accounting firm in Reading, Pennsylvania.

The client, a private company in the services area with $2.6 million in annual revenues, needed several kinds of financing: a $500,000 term loan, a $150,000 working capital line of credit and $200,000 in revolving credit. But the clients existing bank recently had undergone a change in management. It was taking a much harder line, the client thought, and was making unreasonable demands regarding pledges of collateral and personal guarantees.

Caltagirone's first step was to chat with officers at the bank to get a sense of whether the client's disenchantment was warranted. If a client is having trouble with one bank, it may have trouble with others, too, he points out. But Caltagirone's verdict in this case was that the bank was responsible for the deteriorating relationship. It had become unreceptive to his clients needs. Time to move on.

Caltagirone starting pulling all the pertinent data together on his client. Some information was right at his fingertips, such as the client's financial statements going back four years. Other information had to be assembled: the company's history, principals' backgrounds, a listing of collateral and cash flow projections. He put it all in a neat three-ring binder. All told, putting the information together required about 40 hours of work.

Caltagirone knew four bankers who might be right for his client. He sent a binder to each. He telephoned each and requested that representatives of the bank get together with his firm and the principals of the client company. Two of the banks passed on the offer, one citing bad experiences with companies in the clients industry and the other demanding a personal loan guarantee, which was unacceptable to the client.

But the other two offered to meet with Caltagirone and his client. Each meeting lasted about an hour and a half and took place at a Beard & Co. conference room. Present: a line lender and credit officer from the bank, the owner and chief financial manager of the client business and Caltagirone. The two banks also visited the client's site and toured its facility.

Both of these banks submitted term sheets allowing Caltagirone to compare rates. The more expensive bank turned out to have more liberal lending guidelines. So Caltagirone decided to negotiate with that bank. He got it to agree to a number of price reductions such as dropping the loan origination fee on the $500,000 line of credit from 1.0% down to 0.5% and shaving its lending rate from prime plus .75% to prime plus .25%. The client also had to make a few concessions, such as agreeing to pay back the term loan in six rather than seven years.

Once both parties were satisfied, Caltagirone had a match. Beard & Co. collected a consulting fee but, even more important, gained increased loyalty from the client. Now the client is happy with a new bank and happy with us, says Caltagirone.

You'll also want to pick the right size bank for your client, whether its local, regional or international. As a simple rule of thumb, a client will be well matched with a bank that has a similar geographic reach. A company operating exclusively in the Mid-Atlantic region probably gets the best service from a bank in the corresponding region. A client may be too small to get good service from a larger bank, but a purely local bank may not be able to provide all the services a small client needs.

But what happens if a regional company suddenly needs an international service such as currency exchange? If the client is important to the bank, but the bank can't provide the service itself, the bank should provide the service through alliances with a bank that can. If currency exchange is important to a client, make sure to ask the bank about its arrangements. Even many tiny banks work with Citibank and the like on international services. Of course, a company may need to reconsider its banking relationship as it grows and its financial situation changes; it should make sure it is working with a bank that can accommodate its full range of service requirements.

Once you have some solid banking candidates, you'll want to check out their stances on loans. This is perhaps the single biggest issue in a banking relationship. Chances are the client is going to need some kind of financing, whether it's a working capital loan, a term loan or a line of credit. Get a gauge of the banks lending philosophy. Too conservative and the bank won't help your client, particularly if your client has a shaky credit history. Too liberal and the bank itself may be in for trouble down the road. The best way for a CPA to explore a banks lending philosophy is to approach the banker with specific questions. Don't merely ask, What's your lending philosophy? Describe the client as, say, an importer with less-than-stellar cash flow history, and see what reaction you get from the banker.

Also, find out who makes the decision on a loan. Ideally, the local loan officer who understands a clients business is the decision maker. That leaves latitude for personal judgment. However, merger mania has grown many banks into impersonal Goliaths. Loan decisions that once were made by individual bankers at the local level, people who knew their customers well, may now be made by computers programmed for automated credit scoring. In other words, loans are approved or rejected based on a strict formula that takes into account factors such as a client's income and number of years in business. In too many cases, the loan-approval process has become formulaic, anonymous and committee-based. Your client isn't going to be well served if loans are approved at a banks headquarters three states away, says Mark Taylor, director, Crowe, Chizek LLP, a firm with 100 partners in South Bend, Indiana.

Taylor tells of a small local manufacturing company that he matched up with a bank able to provide a local loan officer. On a regular basis, the loan officer visited the plant site. He got to know the company as its operations expanded and came to thoroughly understand its financial needs. Certainly, credit scoring would have been a poor substitute for the loan officer's firsthand knowledge of Taylor's client. The personal touch made for a much easier relationship, he says.

What You Should Know
About Your Client

Use this checklist to gather information about a small business client before you approach a bank:

Length of time the company has been in business.
Credit history.
Historical financial performance.
Tangible assets that could serve as collateral.
Payroll requirements.
Market share.
Types of financing needed.
Background and experience of key personnel.
Whether a succession plan is in place.
Company structure, such as S corporation or partnership.
Industry outlook; major customers and competitors.
Risk profile.
Whether it's a seasonal or cyclical business.
Plans for expansion.

Also inquire about the banks lending formulas. What will the bank accept as collateral? Most banks accept a company's inventory as collateral on a loan; some also accept real estate holdings. Determine what percentage of the collaterals value the bank is willing to lend against. Will it advance 70% of the value of inventory, say, or 80%? And what's the bank's lending limit? If you represent a fast-growing client, a $50,000 loan ceiling may quickly become too small. Then there's the question of personal guarantees.

Many clients balk at backing up loans with personal guarantees, because it puts their homes and cars at risk should their businesses fail. Know the client's position on this issue before the bank brings it up.

If banks seem reluctant to meet a clients credit needs, look to alternative sources of financing. The client may be eligible for an SBA loan. The SBA's loan regulations are immensely complicated, so you'll need to approach a bank that has experience in this area. To find one, go to your state or district SBA office or visit the SBA's Web site ( You might also look to industrial finance agencies, venture capital firms or high-risk asset lenders, among others. Check with the state CPA society; some states have a committee on alternative financing sources.

Denver-based DataMerge Inc. provides a number of interesting Web links through its home page ( DataMerge's Financing Sources Databank is a national database of alternative lenders and equity investors, including profiles on their lending policies or investment criteria. The company also offers loan proposal software.

The bottom line: Don't narrow your search to banks (see sidebar). The walls between banks and other types of financial service companies are crumbling, with each offering services once the exclusive province of the other. Banks now offer mutual funds and insurance products, for example. Meanwhile, brokerage houses can provide checking accounts.

  Banks Aren't the
Only Game in Town

Time was, banks took care of all a company's financial needs. Today, nonbank financial companies can offer your client many of the same services. A recent survey by PSI, a market research firm in Tampa, Florida, found that 57% of companies with annual revenues of $500,000 to $10 million have nonbank relationships, often for financial services traditionally associated with banks. That's up from 49% in 1988.

American Express, for instance, can help your small business client with foreign exchange or offer an unsecured line of credit. Green Tree Financial offers vendor financing. What's that? Usually, vendor financing is obtained through the seller, analogous to an auto company's financing arm. If your clients company wants to buy equipment such as computers or copy machines, the vendor gets your clients financing through Green Tree, which will finance the purchase accepting the equipment as collateral. Your client doesn't need a bank for that credit and probably will get a better interest rate than one from a bank because of Green Trees relationship with the vendor.

Brokerage houses such as Merrill Lynch can offer checking accounts, maintain 401(k)s and extend credit. Merrill Lynch currently has $7 billion worth of small business loans on its books.

I can't think of anything a bank can do that we can't do, says Kevin Rooker, a vice-president/financial consultant with Merrill Lynch in Princeton, New Jersey.

    Aside from loans, a whole slew of services might benefit a client. Many banks can handle company payroll and direct deposits into employee accounts. Or, according to IRS requirements, they can do electronic tax filings on a monthly basis. Some banks can maintain employee retirement savings programs such as 401(k)s. Determine which services a client might want and select a bank accordingly. Typically, you can get daily, weekly or monthly reporting of transactions, automatic reconciliation of accounts and even extremely detailed reporting of debits and credits.

    A mom-and-pop grocery might require only the most basic services, such as checks sorted by number. A midsize realtor, meanwhile, might require more sophisticated cash management services such as a sweep account (a customized checking account that automatically rolls excess cash into investment vehicles). When a client's sweep account balance gets above the accounts limit, say, $10,000, the surplus cash can be swept into a mutual fund or an interest-bearing bank account. Sweep accounts can be customized any number of ways and can feed into most any kind of investment, stocks, bonds, treasuries, depending on your client's risk profile.

    Lockboxes are another valuable service provided by many banks. If customers mail checks to a client in large volume, this might be an option worth considering. A lockbox is a bank-maintained account to which customers can send payment, usually via a P.O. box. The bank then processes the checks and deposits the payments directly into the company's account.

    Other services worth exploring: wire transfers and letters of credit. A wire transfer allows a company to move money directly to the bank of a customer or vendor without paperwork. A letter of credit may be necessary if a client is called on to do a big job and a vendor isn't confident about receiving payment; its a guarantee from the bank that if the client cant make payments, the bank will fork over the cash instead. Banks' policies vary on wire transfers and letters of credit; make sure you pick a bank that can meet the client's particular needs at a reasonable price.

    Banks also vary in how they deliver account information. Some are fully wired, facilitating e-commerce. Others remain in the analog age and do everything with good old-fashioned paper. Companies exist along the same continuum. Some clients are very excited about electronic banking, while others could care less, says CPA Lamar Stoltzfus, one of 17 partners with Beard & Co. in Reading, Pennsylvania.

    Once again, the issue is matching client and bank. A high-tech start-up may want the latest services, such as online check clearing, so it can pay its vendors from a PC. Another client may like to receive bank statements on CD-ROM (yes, some banks can provide statements in this format). The owner of a small town hardware store, meanwhile, might like to receive monthly bank statements in the mail and keep canceled checks in a shoebox.

    What You Should Know
    About A Bank

    Use this checklist to gather information about a bank before you recommend it to a small business client:

    Lending philosophy.
    Lending formulas used.
    Kinds of collateral accepted.
    Where lending decisions are made, who makes them
        and their personal style.
    The other companies in your client's industry the
        bank lends to.
    What your other clients' experience has been with
        the bank.
    How involved the bank is with the local community.
    The financial soundness of the bank.
    The banks geographic reach.
    What services it does or does not offer.
    Its fee schedule for its services

    Now a word on fees: With interest rates low, banks aren't able to depend as much on spreads, the differential between the interest rate on deposits and the interest rate on loans, to make money. Instead, banks try to make more profit from fees. Stop payments, overdrafts, wire transfers, each carries a fee. Most banks offer more than 100 products and services. They've gone over their lists and are trying to increase fees wherever possible, says Charles Wendel, president of Financial Institutions Consulting, a New York City strategy firm that works with banks, credit card companies and insurance providers.

    Five years ago, Wendel says, the fee for a stop payment for a small business was typically $5 or $10. Now it's about $25. Nearly across the board, banks have upped the charges when account balances fall beneath certain preset levels. When you meet with prospective banks, obtain rate schedules listing fees for their services. Bank fees can be all over the place. One bank may slap a 0.5% fee on a letter of credit; another might charge 1.5%. However, the good news is that competition between banks is fierce. Don't be shy about making banks work for your clients business. Armed with rate schedules from several banks, demand that the fees attached to various services be lowered. Stack them up against each other, suggests Wolf & Co.'s DeVasto. In today's environment, banks have to be very competitive about rates.

    DeVasto cites the example of a client in the retail business that attracted nibbles from three different banks. DeVasto obtained rate schedules and played the banks off one another. The winning bank came on very aggressively, agreeing to reduce the interest charged on loans by 0.5%. That bank also agreed to increase its asset lending base from 70% of inventory to 80%.

    With this in mind, why limit your client to just one bank? The banking industry is consolidating. Loan officers come and go constantly. The individual banker that your client is dealing with today could be gone next month. Lending policy often changes after a merger. To provide fallback options, a prudent company may want more than one banking relationship, even if the second is only on a limited basis. For instance, your client could obtain an asset-based loan from a second bank. That way, were the primary bank to merge into a Goliath based light-years away, a second bank would already know your client.

    Even in this era of musical bankers, its still a business where relationships matter. Thus, one last caveat: Don't make your banking decision strictly based on rates. After you've weighed the services and fees and whatnot, you still want to go with your gut. The $64,000 question remains: Which banks loan officer is most likely to see eye to eye with your client? Says Beard & Co.'s Stoltzfus: Once you get past the numbers, a lot of it comes down to touchy-feely stuff. Who will work well with my client? It's still a people business.

    Services Banks Might Offer
    Your Client

    Which of the following services must your client have?
    Which would the client like to have?


    Term loans.
    Lines of credit.
    Revolving credit lines.
    Letters of credit.
    Commercial mortgages.
    Credit cards.
    Leasing products for computers or equipment.


    Checking accounts.
    Payroll/direct deposit.
    Wire transfers.
    Currency exchange.
    Sweep accounts.
    Account reconciliation on a daily, weekly or
        monthly basis.


    Mutual funds.
    Online banking.
    Electronic payment to vendors.
    Retirement planning such as 401(k)s.
    Advisory services such as estate or succession


    Year-end tax planning and what’s new for 2016

    Practitioners need to consider several tax planning opportunities to review with their clients before the end of the year. This report offers strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.


    News quiz: Retirement planning, tax practice, and fraud risk

    Recent reports focused on a survey that gauges the worries about retirement among CPA financial planners’ clients, a suit that affects tax practitioners, and a guide that offers advice on fraud risk. See how much you know with this short quiz.


    Bolster your data defenses

    As you weather the dog days of summer, it’s a good time to make sure your cybersecurity structure can stand up to the heat of external and internal threats. Here are six steps to help shore up your systems.