Commercial lending is more competitive than ever, with banks, credit unions, and online/fintech lenders all swimming in the same pool of opportunities. Building and maintaining strong relationships with business customers is a key differentiator that banks can leverage for a competitive advantage. "To build a relationship, you can't be the guy who just walks up and talks to the client about their next loan," said Tim Kotnour, president and CEO of State Bank Financial, La Crosse and a member of the 2019-2020 WBA Board of Directors. "It's about getting to know the customer through questions and being curious, and not just about the business, either. Get to know the person on the other side of the table, personally as well as professionally." When it comes to relationship-building, little things make a big difference, whether it's remembering the names of a client's children/spouse or opening doors to other opportunities through referrals. "They're little things, but they go a long way," said John Hecht, principal at J. Hecht Consulting LLC. "They don't cost a lot of money, just time and energy."
The most effective tactics for establishing deep client relationships will vary slightly from business to business and industry to industry, but most commercial bankers will find that building trust, proactively preparing, and expanding the relationship are foundational building blocks. "The most important thing in every stage is to build trust," said Mark Erickson, regional president of MidWestOne Bank, Osceola and a member of the 2019-2020 WBA Board of Directors. "Banks were originally created to build trust in the economic use of money, and as much as our industry has changed, that piece hasn't." One trust-building tactic Erickson recommends is making—and keeping—small commitments, such as forwarding a contact, sharing an article, or recommending a book. "That builds trust that you'll do what you say you're going to do," he said. Another way to build trust is to meet regularly, especially in person. "You can provide good service online or over the phone, but there's still something to be said for face-to-face interaction and working with someone over time to build up trust," said Doug Nelson, Regional President, National Head of Agricultural Banking at BMO Harris Bank, N.A., adding a caveat that bankers have to be able to effectively address a customer's needs, preferences, and goals as they change over time. Some clients may prefer a monthly face-to-face, while others just want an email—or even a text—once per quarter.
Another relationship building block is taking the initiative to proactively research both the client and his/her business. "To develop a relationship with a client, being prepared and doing homework up front is very helpful," said Hecht. "Ask relevant questions and actively listen to the responses." Kotnour also recommended asking questions, adding that doing research before the meeting is a key step. "You can find out a lot about a person before you ever meet them with social media and the internet," he said. "Don't meet with someone before you've looked up their LinkedIn profile or googled them. Don't make the customer do the heavy lifting. Preparedness on a call is a big differentiator."
Bankers should also be prepared with in-depth understanding of the client or prospect's business and industry. "From the prospecting level, bankers need to be able to connect to their potential customers and understand their industry and how their business fits within the industry," said Nelson. "Help them grow over time." When the bank does that, they demonstrate their willingness to become a partner with the client's success. The long-term version of this building block is to help the customer foresee future needs. "Sit down with your customers and talk about what the future of their business looks like so you can get a jump on their needs for the coming year, as opposed to having one of your competitors come in and say 'hey, we can finance that for you,'" Erickson advised.
Finally, to deepen client relationships, bankers must be willing and able to expand their expertise and client conversations beyond the loan. "We need to be prepared as the customer goes through various stages to provide more than just traditional banking services," Nelson explained. "Bring them ideas for how they can expand, or introductions to help with M&A or generational transfer. If we don't, that leaves the door open for someone else." A smooth transition to wealth management or estate planning services is also a differentiator for traditional banks over most online challengers, who offer only a narrow subset of financial services. Expanding beyond the loan requires the banker to understand more than just the lending side of the business. "We're a financial services industry, not just lenders," said Kotnour. "We aren't just selling loans, so you have to know what the industry provides and ask questions so you can match up needs to products and services."
Another way to expand the client relationship is to create multiple points of contact between the bank and the business. "It's really important to bring forward other team members who have segment expertise, benchmarking information, or best practices that will help the customer improve their operations based on what they've seen elsewhere," Nelson explained. "Beyond the banker, it is important for the customer to know that they have the backing of an organization that has the depth and breadth to meet their needs as they evolve." That list could include credit analysts, treasury management, portfolio manager, and even bank leadership or board members. At the business, it's important for the banker to know more than just the owner. Not only does it remove some of the pressure from the busy owner, but it creates relationships with other influential members of the team. "Buying and moving decisions are not usually the owner's decision," Erickson explained. "It's someone else who is experiencing pain somewhere in the business."
Maintaining strong client relationships is a related skillset to building new ones with prospects, with a few key differences. A proactive approach is still essential, but depends more on responsiveness and adding value than on research and asking questions. Erickson says they call taking a proactive approach to relationship management with existing customers "building fences" around those clients. The most effective way to compete is with responsiveness and flexibility, according to Hecht. "It comes into play with having a common-sense approach to a credit request," he explained. "Every bank needs to take a hard look at their loan policy and consider delegating authority to empower decisions faster than they've done in the past."
In addition to responsiveness and flexibility, bankers should always strive to add value to their ongoing client relationships. "Banks never want to compete on price alone," said Nelson. "The key is adding value beyond price." One way to do so, he explained, is by understanding the specific market your customer is in and how market forces will impact their business. Done correctly, this allows the bank to proactively engage with customers as they pursue opportunities and address challenges. Another way to add value is by making doing business with the bank as simple as possible for the client. That could mean authorizing the client's tax accountant to send documents directly to the bank or having a secure digital portal for transferring files. "Anything you can do to make it easy and simple to do business helps maintain the relationship," said Hecht, adding that having good technology is "table stakes" today.
Perhaps the most effective way for bankers to add value is by sharing their expertise with customers. Bankers who approach their client relationship with a coaching mindset often add value by offering expertise and advice. "As bankers, we accumulate a tremendous amount of knowledge from different industries, niches, and management styles," said Kotnour. "Without violating confidential information, a good banker shares that information. It's gold."
J. Hecht Consulting LLC is a WBA Associate Member.
Don't miss the WBA Introduction to Commercial Lending School!
Held Sept. 18-20 in De Pere, this three-day school curriculum is designed to provide bankers with a basic understanding of the principles and concepts of commercial lending. The curriculum covers topics such as loan structuring, analyzing business financial statements, cash flow, ratio calculation and trend analysis, and commercial lending laws. If you're interested in expanding your banking career into commercial lending, reserve your spot at this school today!