Mixed Signals

Your company may be doing just fine, but that may not be the way your banker sees it

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Did you know that your banker is constantly evaluating you and your business? We examine your financial statements, of course, but we notice other things, too -- such as how much weight you've put on.

Remember, the nature of the banking business is to evaluate risk. We're the guys who cheer when the home team uses a quick kick on the third down. So if we get an inkling that all is not well, we get nervous. And if we conclude that you're in trouble and you do nothing to make us think otherwise, you might as well have asked us to turn down your next loan request, raise your interest rate, or call your loan. The fact is, your business may be prospering, but at the same time you may be sending us signals that say just the opposite. Let me run through some signs that attract our attention -- negatively.

You show up on the wrong lists. Most bankers I know review daily lists of checks drawn on uncollected funds, overdraft accounts, and large transactions. If your account regularly appears on one of these lists, we wonder if you're out of cash, kiting funds, or otherwise headed for trouble.

We also review daily lists of past-due loans, loans with incomplete collateral documentation, and late financial statements. (You may not consider late statements significant, but we do. We've learned that people are seldom late when they have good news to tell us. If you're slow, we begin to assume the worst.)

Now the last thing you want is to have a senior loan manager, who doesn't know you from Adam, getting acquainted with you by seeing your name on one of these lists. No matter how well your business is doing, those of us who review the lists develop a sense that these are the "bad guys." There have even been times when I've been introduced to someone at a party, and his name flashes in my mind as having appeared on one of my lists. I immediately find myself trying to figure out what's wrong with the guy.

You act as if you are hungry for cash. When you frequently request small loans to cover incidental expenses, we begin to assume that your company isn't generating enough cash. Or if you maintain high balances on your bank credit cards, we wonder why you're willing to pay 18% interest for money rather than pay the balances. Or when your financial statement shows a large net worth and a small amount of cash, we worry that your debt service may be exceeding your cash flow.

If you have enough cash in your checking account, you can probably negotiate a lower rate of interest on your loan. If you don't, or are always shifting your unused funds into an interest-bearing account, you'll probably end up paying a higher rate. We can't help but wonder why you'd want to do that unless you were hard pressed for the cash.

You make one change too many. Should we find out through the grapevine that you've replaced a key adviser -- sometimes we learn this by receiving a financial statement signed by someone new -- we get suspicious. We expect you to tell us of major changes, and when you don't, we're apt to wonder if you fired your adviser because he was telling you things you didn't want to hear. We usually know something about the quality of various professionals in the community, and if you've dropped one because of poor work or incompatible personalities, we'll probably know just what you're talking about. But we feel very uneasy if it seems that you're trying either to run away from problems or, worse still, trying to hide them from us.

When you change your mind too often in your dealings with us, you leave the impression that you're out of control. One fairly common situation that a banking friend of mine complains about is a customer coming to the bank with a request for a specific loan amount. The banker gets it approved, and the customer then says he really needs a lot more money. To a banker, not only does this look as if you don't know what you're doing, it's also embarrassing for the loan officer to take a "whoops" proposal back to the loan committee.

You look a little rough around the edges. When we bankers evaluate the risk of a loan, we take a long, hard look at the borrower's character. In loan-committee meetings, I've often heard one loan officer make a proposal for his customer and another officer say something like, "You know, he's gained an awful lot of weight recently and doesn't look very well. What's wrong?" We worry about any changes in behavior that suggest alcoholism, drug abuse, gambling, abrupt changes in marital status -- or any signs of anxiety that may be caused by a problem in your business.

If your company begins to look run-down -- paint peeling, grass unmowed, or shrubbery drying up -- chances are someone from the bank will notice. It will look to us as if you are either not paying attention to the details of running your business, or that you don't have the money for basic maintenance. Of course, if we have a mortgage on your building to secure your loan, we'll want you to keep things looking good. But even if we don't, you may begin to look like a riskier client.

If any of these situations sound uncomfortably familiar, your banker is probably feeling a little queasy. This is the time to give him a reassuring phone call.