Two entrepreneurs explain their contradictory approaches to managing banking relationships.
CEOs Barry Shames and Zacky Melzer couldn't disagree more about how to manage a banking relationship Edited
B arry Shames Plays For Keeps. "It's a basic premise in all my business relationships that my companies are selling quality and service at competitive prices. I want the same thing from my vendors -- including my banker. I won't buy anything just because it's the cheapest thing available. When you buy cheap and you hit a bump, cheap is what you've got.
"We once switched to a big bank with low rates. The service was terrible -- a lot of switcheroos in the people who were handling our account and what they wanted to do for us. Those banks trade people all the time, so first your banker is John, then it's Elizabeth. You've always got to take the time to explain to your new banker how your business works and why its results sometimes look different from what the bank might expect. It starts out cheap, but what about how much it costs you every time you have to teach a new banker?
"There's another pitfall when you go to the cheapest bank, the kind that quotes low fees just to bring in any business it can. You'll probably find that the first time you have a problem, that bank will tell you, 'Your company's too risky. We can't make money on it.'
"Our current bank isn't inexpensive. But it has helped us take advantage of some incredible growth opportunities over the past few years. The service it provides is exceptional. It gives us much more than a $500,000 credit line, because of all the ways that our bankers try to help my companies and the understanding they bring to our dealings.
"That's what you need in a banking relationship."
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Barry Shames is owner and chief executive of Shames Construction Co., a 15-year-old $15-million company based in Livermore, Calif. Shames also owns ANT Internet, a New York City-based World Wide Web development start-up.
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Zacky Melzer Plays Hardball. "Very few business owners can afford not to be proactive about banking issues. Banking is one of only a handful of issues that I've never let anyone else handle.
"When our company was young, we didn't have many banking options. But as soon as we began to build a record with our first banker, I tried to win improvements. One of my first successes was in getting my personal guarantee removed from Tova's corporate loans. That happened in our third year, when I felt we had built a good enough record to qualify.
"People think banks are rigid, but they're really not. You do have to ask for changes in order to win them. I ask for something only when I feel it's realistic and I'm in a position where I can make a good argument for it.
"If you don't like a bank deal, shop around for something better. That's what we did when our company was about eight years old and we bought a building. My existing bank was only willing to give us a commercial mortgage -- admittedly at a good rate -- if we paid for an expensive appraisal as well as some other fees. But I found another bank that was willing to treat the arrangement as a corporate loan, which saved us the cost of the appraisal and other fees.
"Now I divide our business between those two banks, and they both know they have to prove themselves to me. I use a carrot-and-stick approach, but I'm very up-front about it.
"The results have been great. We've currently got a $1-million credit line at prime. Actually, I asked for a subprime rate, but my banker told me only a company like General Electric can hope to get that. Well, I didn't know. But why not ask?"
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Zacky Melzer is founder, owner, and president of Tova Industries, an 11-year-old Louisville food manufacturer with 1995 sales of $8 million.