Small Business

2006 Financing Guide: I love my banker!

Written by Camilla Cornell

Get cash now |  Your banker |  Banking bliss |  Keys to cash |  Alternative funding |  Sources of capital

Did you hear the one about the banker who was handing out umbrellas on the street? It started to rain, so he took them back.

The old joke reflects the feeling of many entrepreneurs that bankers are fair-weather friends, apt to turn their backs on you in times of need. But as the following three entrepreneurs prove, it doesn’t have to be that way. They credit their banks with everything from saving them a few hundred bucks to saving their bacon. Develop a healthy, open relationship with your banker, they contend, and you’ll have an advocate and ally in good times as well as bad. Here’s how they did it.

Trust is a two-way street

The next time your spouse berates you for checking in with the office during your vacation, tell the story of David Rabby.

For three weeks last spring, the co-CEO of Vancouver-based PFI Research Inc., a provider of focus-group services, enjoyed a well-deserved break from the stresses of running a fast-growing company. Meanwhile, his business partner was forced by a family emergency to leave the office as well. With no one overseeing the management team, a lead member “basically had a party,” recalls Rabby — she negligently overstaffed the firm’s call centre, costing PFI $45,000 just as an industry downturn was about to deliver two months of record-low revenue. “Either by itself was sustainable,” says Rabby. “Together, they were really tough.”

Rabby worried about how Brad Baird, his account manager at Vancity Credit Union, would react. PFI had recently been approved for a line of credit in excess of $100,000 that would stand only if the company met specific monthly ratios, including debt-to-equity — which, suddenly, it couldn’t meet. “Theoretically, the bank could have cancelled the financing,” says Rabby — and that could have sunk the company. But rather than avoid his banker and simply pray for the best, Rabby averted disaster by helping his banker help him.

First things first: Rabby gave Baird the heads-up that things were slowing down before the bank had any other indicator. Then, with help from his accountant Doug Freeman and other trusted advisors, Rabby devised an action plan that included revised projections and more realistic debt/equity and accounts payable/receivable targets. Finally, Rabby and his partner promised Baird they would implement a number of cost-cutting measures, including laying off three full-time staffers, asking suppliers to drop pricing in exchange for long-term agreements and personally approving all non-project purchases, including office supplies and travel.

Vancity still chopped the company’s line of credit by about 10% for several months. But by the end of the year, cash flow had returned to pre-crisis levels, justifying Baird’s patience. Had Rabby and his partner taken a less proactive approach, the results might have been different. “If your banker has to figure it out for themselves,” says Rabby, “it’s not going to be advantageous for you.”

This was not the first time Baird had helped Rabby in a pinch. The $100,000 line itself is a testament to Baird’s flexibility, given that PFI didn’t technically qualify for it. At the time, Rabby had maxed out a $40,000 personal line of credit, and neither he nor his partner could get their banks to cough up more. “We were crammed into a 2,000-square-foot office in Vancouver, and our lease was up,” he says. “If we didn’t get financing, we would have had to stay in that location, which would have dramatically hindered our growth.” Baird managed to push through the deal, with the caveat that PFI submit monthly reports to ensure it stayed on track. The upshot: it was able to move into a larger space, doubling its focus-group capacity and fuelling revenue.

Baird’s and Rabby’s fruitful relationship is rooted in understanding each other’s point of view. Rabby didn’t initially comprehend the ratios Vancity used to calculate how well his company was doing, so he took time to figure them out and now tracks them closely himself. He also keeps Baird posted on where the business is headed with regular e-mails. “Many businesses think that projections or a business plan are important just when you’re starting a company,” says Baird. “But you run the company day to day, and you know what challenges and opportunities you’re running into. Bankers aren’t aware of those things unless you tell them.”

Another point in Rabby’s favour: he regularly brings his bookkeeper or accountant to meetings. “It’s not that anybody distrusts the business owner,” explains Baird. “But they may paint a more positive picture in order to obtain whatever it is they’re asking [for] from their bankers.”

For his part, Baird has shown an admirable willingness to learn about PFI and its industry. “For example, Brad was concerned that our turnover costs and payroll costs were so high,” says Rabby. “But in our industry, call centres pay pretty close to minimum wage, and it’s part-time, project work, so we have high turnover.” Once Baird understood that, he could see why the turnover rate was unavoidable.approach.”

Solutions you didn’t even ask for

For years, the seasonally large cash balances carried by Toronto-based Forever Natural Inc. had proven a pleasant headache for CEO Rob French. Just after the Christmas selling season, the manufacturer and distributor of natural beauty products often had as much as half a million dollars sitting in the bank but earning a piddling rate of interest.

In the past, the company had bought and sold T-bills to try to generate some revenue from the cash, but that required constant manoeuvring and fees. “You might buy a T-bill for half a million and then you need $50,000 of it, and then another $50,000,” explains French. “Each time you’d go in and do the trade and pay commissions, and half the time we didn’t even remember to do it. It’s not the business we’re in.”

He’s not alone. Many entrepreneurs are so consumed by the everyday demands of their businesses that banking details fly under the radar. But choose your banker well, contends French, and you’ll have another pair of eyes watching out for you and your money, making the most of your profits and anticipating your needs to help you grow them.

French credits his duo of bankers — RBC Royal Bank’s Julie Hogg and Mary-Anne Quinn — with doing just that. In the case of the seasonal cash imbalances, they suggested depositing excess cash in an interest-bearing account (its rate depends on the size of the deposit) that could be managed online, allowing French to transfer funds easily while still earning a bit of interest. The new scheme earns the company several thousand additional dollars a year. What’s more, when it took a couple of months to implement, Hogg and Quinn deposited $700 into French’s account to make up for lost interest. “I didn’t even have to ask them for it,” he says, still astounded.draining cash flow from its division there. French approached Lloyds TSB Bank for a line of credit, but was told it would only lend him the money after he’d purchased a T-bill for the same amount. French mentioned the situation to Hogg and Quinn, who responded by sending a letter of reference to the British bank. When even that wasn’t enough, the two set up an introduction of French to RBC’s international finance department, which issued a guarantee to Lloyds based on Forever Natural’s net worth. “It was a creative solution,” French says, “that limited my liability at minimal cost.”

Although French gives Hogg and Quinn top marks for being stellar bankers, he takes credit for deliberately choosing bankers he felt would be a good fit for him and his financial needs. Since French has a long track record as a trusted customer with RBC, he’s loath to switch banks. But when a trusted manager moves up — as has happened to him four times in the past — he feels free to pick and choose his banker. “I don’t care which branch they’re at,” he says. “We can do all our banking off-site or on the Internet. That means I’m free to choose someone who adds value.”

French aims for a banker at his “aspiration level.” “If you’re borrowing half a million dollars today and you think you’re going to need something in the $1 million to $5 million range in future, you want to make sure that your bank manager has the power and authority to get you what you need,” French says. On the other hand, you don’t want a banker who is doing $100-million mezzanine financings. “Then you’re a very small fish in a very big pond.”

French also makes a point of finding out how long a prospective banker has been in his current position and how long he’s planning to stay. You have to expect that talented people will move up, French says, but “I request to be notified well in advance.” At that point, he seeks referrals to a new banker from people he trusts within the bank, from other entrepreneurs and from his accountant. “A good accountant,” he says, “knows good banking people.”

French also does his part to keep the lines of communication open. He makes sure to send the company’s budget at the beginning of each year and interim statements a couple of times annually, as well as sharing the company’s successes and headaches. Says Hogg: “He’s very forthright when it comes to sharing information.”

That’s helpful, say Hogg and Quinn, because understanding a company’s horizons allows them to consider solutions to potential financing challenges, such as new equipment needs, site expansions or entry into new markets. “In order to work together as effective partners,” says Quinn, “we all need to know where we’re going and what the client wants to do.”

More than just a number

No customer wants to feel anonymous to their bank, but that’s exactly how Alan Waxman felt a few years back. After experiencing many manager changes at the CIBC, where he’d been a customer for some 35 years, the president of Toronto-based Waxman Recycling Ltd. felt his business had become “a number rather than an identifiable and valued customer.”

He didn’t worry about it too much. His borrowing needs were minimal, he had a long track record with the bank and he didn’t see the benefits of seeking out a new banker — until, that is, he met CIBC’s Mary Joe Lopes. Before long, he learned that a banker who’s responsive to your needs can save you time, stress and money.

Waxman met Lopes in the summer of 2004. He liked her friendly but aggressive style, and that she was young and hungry. “I love to deal with younger people,” says 63-year-old Waxman. “They’re eager to help, they’re not worn out and they don’t have as many clients, so they have the time.” Nonetheless, he held off moving his business account, instead offering Lopes some personal accounts to manage. She quickly impressed him with her professionalism; if an investment was coming due, he always got a call and solid advice on what to do. Within six months, she had become his business banker.

Waxman admits that his company, a scrap-metal recycler and distributor, is an easy client without any major problems, but says that most times a good banking relationship isn’t all about the gee-whiz services a banker can offer. Instead, it’s about someone who can provide solutions to everyday problems, stay on top of your account and get things done quickly.

One example: Waxman, who delivers about 20% of his scrap metal to U.S. clients, had been using an independent foreign exchange firm. Although it was less convenient than using the bank, it saved the company cash. On a US$25,000 cheque, the bank might offer a rate of C$1.164, compared with the C$1.178 a private firm would offer. Says Waxman: “It’s too much money to give away, even if it’s just $300.”

When Waxman had asked his old bankers to do better on the rate, he got nowhere. “They were reading from a chart,” he says. Lopes was different. When her initial quote wasn’t competitive enough, Waxman asked her, too, to sharpen her pencil — and she did.

How? “If your banker knows where you stand and that you will go outside for a better deal, they’ll become more competitive,” says the entrepreneur. Lopes’ rate saved Waxman $100 to $300 per transaction, and using the bank made the process more seamless. “The next day I’d see that $100 credit in my account and I felt good,” says Waxman. “Do that 20 or 30 times a year, and that’s $3,000 to $5,000.”

Lopes is also happy to perform services that save time for Waxman and his small staff, such as transferring money or calling to suggest he move a big deposit to a higher-interest account. “There is not a week that goes by that there isn’t a call from Mary Joe with a suggestion of some kind,” says Waxman. Lopes is now working on Waxman to adopt an online bill-payment system that will save him from having to visit the bank branch so frequently.

Lopes credits Waxman, who calls her monthly, for keeping her well informed. “We know where the business is going, and that helps us build a plan that suits him,” she says. The best part, says Waxman: “We’re not a Xerox or a General Motors, but I feel like we’re getting the five-star treatment anyway.”

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