Entrepreneurs are all about growth. They want to grow their sales, market share, customer base, profits and more. But if their support system--their accountants, lawyers and, most important, their banks--are inadequate, growth can stagnate.
When it comes to banks, what's the best approach? Should you stick with just one for all your financial needs, or maintain multiple banking relationships--possibly using the small community bank you started with for the basics, and a bigger institution for larger loans and more sophisticated services?
According to preliminary results from a study sponsored by the Arthur M. Blank Center for Entrepreneurship at Babson College in Wellesley, Massachusetts, entrepreneurs tend to have relationships with several banks as they grow. "Sometimes these relationships are simultaneous, but often they're sequential," explains Julian Lange, a professor at Babson College and a co-author of the study with Jonathan Levie and Jan Warhuus. Lange advocates maintaining simultaneous banking relationships to stimulate competition. He also points out that using more than one bank can provide you with some insurance in case one of your banks merges or is acquired, or if your loan officer leaves for greener pastures.
Of course, bankers see it a little differently. "I don't want to have my best customers dealing with another bank, and every time they want something, they go to both of us to see who will give them the best rate," says Robert Fazzini, president of the commercial loan office of Busey Bank, a $991 million institution in Bloomington, Illinois.
Not your concern, you may think. But remember, if you're not careful, you could be left in the lurch by all the banks you deal with. "Entrepreneurs have to realize that banks profit on the services they sell you, and that's why they work with smaller firms--in anticipation of those businesses growing and needing more services. If they perceive they won't get more business from you, banks could lose interest," cautions Lange.
You might be able to circumvent this obstacle by using two banks simultaneously for different services. But realize that keeping two or more bankers happy and interested may require an investment of time you didn't bargain for.