Q: The bank I've been doing business with for years was recently bought out by a large regional bank. All of my contacts have moved on, and I was recently invited by my newly assigned loan officer to find financing elsewhere, despite his admittance that my credit and payment records are excellent. Why are they doing this?
A: You've encountered what I've dubbed the "merge purge." A large bank buys out a small local bank, audits the portfolio and purges certain industries based partially on the lending experience of the banking officers involved. It's a sure bet that one of those officers views your industry as one with a high default rate, has compared your business to one he or she has seen incur losses in the past, and has decided to head off another possible default.
An additional factor may be that your small bank extended you an unmonitored line of credit with no questions asked as long as you were making timely payments. The new, larger bank will require constant updates, and your line is probably looked upon as a labor-intensive hand-holding exercise. Unfortunately, your experience is common in today's marketplace. The key to a successful banking relationship is finding a banker who is knowledgeable about your industry and is comfortable lending to companies in it. Obviously this guy is neither.
To prevent encountering this problem again, narrow your search for a new lender by calling both local and regional banks as well as commercial lenders and asking whether they make loans of the size you need, in your market location and to your industry. Deal only with seasoned officers who are familiar with your industry and can give you a credit decision, so you don't waste anyone's time, especially your own.
Doug Hood is a co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to firstname.lastname@example.org.