How Small Businesses Can Stay on Their Banks' Good Side (Even When Things Are Bad)

In my career as a banker, I have learned that there are definite ways to identify the "good" versus the "bad" business customers, and the "good" customers aren't always the ones who make the most money. Instead, there are other ways to stay in your banker's good graces. Here are my tips to all business owners out there.

Use the financing obtained for the purposes intended. Whenever businesses apply for financing at a bank, they have to inform the bank what the funds will be used for and how the funds will be repaid. For example, if a small business wants to obtain a loan for $50,000 to purchase a piece of equipment, if the loan is approved, those funds should be used for that purpose and none other-such as purchasing a new car for the company owner.

Continue to have open, honest communication with the bank-even when the news isn't so good. The worst thing a business can do in tough times is to cut off communication with the bank. This means avoiding phone calls from your banker or not providing timely financial information for fear of the bank's response. In this day and age, the bank does not perceive "no news" as "good news." In fact, by cutting off the lines of communication, a business is in effect telling the bank that something is wrong. Rather, be open and tell what is going on with the company. The bank may be more willing to work with you and your business needs.

Be flexible and responsive to changes that affect your business. Even if a company can't grow revenues right now, there are other things management can do to help the business weather the storm, such as:

Cutting the cost of sales. This can be done by renegotiating contracts with your suppliers. Chances are, if your business is hurting, so might the business of your suppliers. They'll want to keep you in business to help them stay in business. Therefore, reaching a new agreement will be a win-win for both parties.

Reducing overhead and other operating expenses. This can be done by cutting office supply expenses (for example, by going from paper to electronic methods). Businesses can also cut out all travel and entertainment expenses.

Selling assets that aren't vital to your business. This is only a temporary solution to generate cash for your company, as it is not recurring each year. However, if selling assets is the way to a positive bottom line, by all means, do so.

If you have credit accounts, making sure they are collected timely. Make changes to the credit terms with your customers, and incent them for paying sooner rather than later.

Going through an economic downturn isn't necessarily the end of your business-or your relationship with the bank. Instead, it could be a time to make your relationship even stronger.