Practical Ways to Manage Your Bank
Guest Article by John Warren, founder and CEO of CFS Financial, an ACSI Partner and financial advisory firm that works with Christian schools, ministries, churches and other organizations in all aspects of financial management. Mr. Warren is a new supporter of the Christian School Journal Blog.
It is necessary for every Christian school to understand that your banking relationship is to be managed by you. While the subject isn’t terribly broad or complex, this aspect of financial management can be very important to your school’s ability to thrive. My input on this subject is derived from almost thirty years of experience on the banker’s side of the desk along with my financial consulting experience with Christian schools.
First, every school should develop and maintain a relationship with at least two and preferably three banks. You might want to utilize one for an operating checking account with a money market account for excess cash, another for reserve funds or endowment funds, and a third for payroll or some other aspect of your finances. Generally speaking, smaller regional or community banks will tend to be more consistent in terms of culture. However, merger and acquisition activity is common in the banking industry, and you are likely to find yourself banking with a new bank from time to time due to such activity. It might also make sense to ask your bank to disclose its lending limit per client. This is the maximum amount that your bank is willing to lend each customer. Knowing a bank’s lending limit can be helpful when applying for a loan in the future.
If your organization already has bank debt, I encourage you to conduct your depository banking at a separate bank unless your loan agreement requires that you keep deposit accounts with the lending bank. “Right of offset” rules allow a bank to seize deposited funds under the same tax identification number as a loan in default under certain circumstances. But the bank can only do this with its own accounts. Under certain loan agreement provisions, your bank can declare default for any number of technical reasons related to timely payment or covenant compliance, and they may accelerate the entire balance of the loan and seize all the organization’s cash held in that bank. The timing of this seizure can be crippling to your organization, as it can occur without notice.
The following are several additional practical guidelines for maintaining healthy banking relationships:
1. Befriend several bankers outside of your current bank. Meet finance professionals through your school or organization’s family, your church, civic organizations, or elsewhere in your community. Bankers who are currently at middle management levels might be a valuable resource to you in the future. Bankers typically have relationship development goals, and you might find them eager to get to know you and your school.
2. Get to know your loan officer if you have a bank loan of any sort. Invite the loan officer to get to know the chief executive of your organization. Provide a tour of your facilities and provide other organizational exposure to your banker. This is also a healthy practice for organizations which don’t have debt as it might become necessary to borrow money in the future.
3. Provide all required information to your banker on time—including payments. If for any reason this becomes impossible, communicate proactively with your banker. Explain the reason for the late payment or information delay, promise to remedy the matter by a certain date, and promise to follow up by phone or in person. Generally speaking, bankers respond well to proactive client communication, even when the news is bad. Explain changes in your financial position and let your banker know you are managing your organization proactively.
4. Don’t make presumptions about the transfer of goodwill. You can’t expect the bankers who serve your board members’ companies to be as eager to do business with your school or organization. Well-meaning board members often introduce their bankers to your school because they believe they can transfer their personal goodwill into a banking relationship for your school. This is rarely the case.
5. Maintain at least two and preferably three or more banking relationships. If your organization is burdened by heavy debt, dividing the debt, when possible, among two or more banks makes sense. Bank cultures change and banks fail. For these and other reasons, banks’ appetites for credit change over time. It makes sense to have a competitive environment in which multiple relationships allow you to get multiple quotes on new loan terms and on renewals. Starting from scratch and searching for a new bank is much more difficult than expanding a relationship with an existing bank.
6. Top officers should know bankers. The chief executive in the organization and the CFO should meet multiple bankers at various levels at each of your organization’s banks. It is important for the banker to know the senior-most executive in the company, as well as the most competent accounting person. The two people in these roles, along with one or two other key people in some cases, will give the banker comfort with the quality of management and the integrity of the company’s financial data. These subjective matters should not be underestimated when managing the company’s banking relationship.
7. Look for external funding sources. Options such as tax exempt bond financing and loans from private equity funds might be available from lending organizations which are not traditionally considered to be commercial lenders. These funding vehicles for real estate debt can have very attractive terms, and these alternatives should be explored with a professional financial advisor. Be aware of consultants and advisors with less credibility, as they can have predatory agendas which might include acquiring your school’s real estate while appearing to be constructive in the short run. Loan terms which at first appear to be too good to be true and loan terms which have draconian default remedies are warning signs which might be indicative of predatory lending.
8. Managing your banking relationship is your responsibility. The employment of the simple tools herein will allow your organization to enjoy mutually beneficial relationships with your bankers. Knowing your bankers personally can result in clearer communication and less relationship stress when unexpected events occur.
John Warren is the founder and CEO of CFS Financial, a financial advisory firm which works with Christian schools, ministries, churches and other organizations in all aspects of financial management including debt restructuring, financing, strategic planning, and governance. He lives in Central Florida, and his education includes an MBA from the University of West Florida. John enjoyed a successful 28 year banking career that includes roles as President, CEO, and Chairman of three banks prior to founding CFS Financial. John speaks and leads workshops on various financial management topics, and has devoted his career to consulting with Christian schools and other nonprofits. He may be contacted by email at firstname.lastname@example.org, or by phone at 407–257–6220.