Having a strong relationship with a bank is crucial for businesses even in good times, but the uncertainty of the COVID-19 situation has reinforced the importance of an effective financial institution.
Most recently, the Paycheck Protection Program demonstrated the critical role that a personal relationship with a banker plays, said panelists in a webinar last week hosted by Anchin Accountants and Advisers. Contractors with longstanding partnerships with banks were able to get approved for PPP funds quickly.
Some others, especially those without a lender to turn to, walked away from the process disgruntled and empty handed. Panelist Charles Dantone, associate group director and vice president at Signature Bank, said that the PPP process tested contractors’ relationship with their lenders.
In fact, all of the three bankers on the panel noted that in recent weeks they have picked up new clients who have severed ties with their banks after an unsuccessful or aborted PPP application.
“They tell us that during the PPP process their lending institutions had no communication with them, that they wouldn’t return calls or would only send generic communications and blanket emails,” Dantone said.
Having a communicative banking professional is crucial during the current crisis and beyond, he said.
“Contractors want to know that when something like this happens or if it continues to happen again in a second round, that they’ll be able to talk to someone at their bank and have that personal relationship,” Dantone said.
The COVID-19 pandemic has necessitated a constant stream of communication between contractors and their banks, the panelists agreed. Even though PPP applications are winding down, contractors and their lenders need to be in touch regarding new guidance and legislation being announced nearly weekly.
Dantone instituted conference calls with his clients' stakeholders including its bonding company, insurance agent and accountant. This team approach is appreciated by underwriters, he added.
Panelists’ other advice to contractors included:
Be picky about new jobs. “Stick to your wheelhouse and realize it’s OK to say no sometimes,” Dantone said, cautioning attendees to make sure new projects have solid funding, which is harder to come by during economic uncertainty.
Vice President of Commercial Banking at M&T Bank Brian J. Diffendale agreed, saying that “sometimes a company’s success is based on the job they didn’t take.”
Be ready to explain how new safety and social distancing rules will affect a project’s bottom line. With less workers allowed on site and more PPE and other protections, jobs will take longer and be more expensive, Dantone noted. “Who’s going to eat that cost?” he said. “We are looking to see how our clients are planning to go back to work and how they’ll manage things going forward.”
Consider paying off credit. Many contractors are flush with cash because their expenses have decreased during government-mandated job shutdowns. “We’ve had a lot of clients coming in and paying down the balances on their line of credit,” Diffendale said. “They are taking the opportunity to deleverage and save on interest.”
Keep PPP funds in a separate account. This will allow for easy tracking of the money in case of an audit, the panelists said.
Be prepared for the upcoming LIBOR phase out in late 2021. The discontinuation of the London InterBank Offered Rate, the interest rate banks use to lend to one another, will bring a host of issues for U.S. companies. Dan Markus, first vice president of commercial lending at Valley National Bank, said his company wants to know that customers are prepared to switch to the new system, most likely the Secured Overnight Financing Rate (SOFR) and that any new contracts have switchover language.
Continue using new ways to move money. The panelists said that the pandemic has forced many of their contractor clients to switch to more efficient ways of paying and getting paid including automated bank-to-bank ACH electronic transfers.
“It’s a new way of doing business for some of them but they’ve seen how it kept things moving while we were all working from home,” said Diffendale.
Seize opportunities. While it’s important to be careful about new work, the bankers said they like to partner with customers that are playing on their strengths during a crisis and can capitalize on work left behind by struggling firms. “Go capture some market share,” Diffendale said. “Take advantage of it now.”