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Have you ever submitted a loan package to your bank only to be deluged with requests for more information without ever receiving a definitive "yes" or "no"? This could be a not-so-subtle sign you've outgrown your bank.
That's what happened to Joe La Valla, 41, co-owner of FoxIntegrity Graphics Inc., a Windsor, Connecticut, pre-press and printing firm with 78 employees and more than $10 million in sales. In 1996, La Valla and his two partners, brother Victor La Valla, 44, and John Lorusso, 36, decided to purchase 80-year-old Fox Press and combine it with their existing firm, Integrity Graphics.
"I went to my bank and pitched the idea, and my loan officer thought it was a good one," remembers La Valla. But he didn't have the authority to approve La Valla's $3 million loan request, so he submitted it to the approval committee.
At the time, Integrity had been doing business with the bank for 10 years. The bank handled the company's 401(k) program, all its business checking and a line of credit. Earlier, the firm had obtained and repaid a $300,000 loan from the institution. But when it came to getting an answer on the new $3 million loan, the bank fell strangely silent.
"They never gave us a clear-cut answer [about the problems with the package]. They just kept asking for more information," recalls La Valla, who decided to cut his losses after eight months. "I was tired of getting the runaround."
Then a friend steered the entrepreneur toward First National Bank of New England, where La Valla submitted an application for the loan. "They came [out to discuss the loan] on a Friday after 3 p.m. and left at 6 p.m.," says La Valla. "They said they'd have a commitment letter to me the following Tuesday, and they did." The new bank's confidence in him persuaded La Valla to transfer the company's line of credit, as well as its checking and money-market accounts, to First National.
La Valla's situation is not unique. In a 1995 IBM study of 450 companies with revenues under $15 million, 20 percent said they expected to outgrow their bank within a few years. The top reasons cited were lack of adequate services and lending limitations.
How do you know when it's time to move to a bank with deeper pockets? Bill Sones, president and CEO of State Bank and Trust Co., a small, $135 million bank in Brookhaven, Mississippi, says knowing the institution's legal lending limits and looking at the range of services offered should provide an answer.
"You might need sophisticated services your bank doesn't offer, like safekeeping or cash management accounts," explains Sones. Needing to borrow more than a bank can lend may also be a sign, he says. But that doesn't necessarily mean you should leave. Some institutions have correspondent banks with whom they join forces to make larger loans without exceeding their own legal limits. Sones says another option is to find out if your bank can put together a consortium to handle a loan or if it would act as an originator for a larger bank.
La Valla's experience taught him some valuable lessons: When looking for a new bank, find out what the bank's lending limit is. Also, be sure the bank offers services you need now--and may need in the future. You'll avoid the hassle of switching to a new bank if you find the right one the first time around.
FoxIntegrity Graphics Inc., (860) 688-5200, fax: (860) 285-8414
State Bank and Trust Co., (601) 833-4451, fax: (601) 835-0703