A relationship to bank on: knowing your client's banker can help elevate your status as a financial adviser.

• Author: Lozano, Stephen
• Position: BankingRelationships; accounting

How to make your banker your best friend or How to stop worrying and learn to love your bank. OK, perhaps the reference to Stanley Kubrick's 1964 black comedy "Dr. Strangelove Or How I Learned to Stop Worrying and Love the Bomb" is a shade obscure. But, it highlights the opportunity you have to assist your clients in their commercial bank relationship.

Commercial credit remains a misunderstood process. Bankers do not adequately communicate to CPAs and clients how and why loans get made and managed. The following are a few frequently discussed topics that will allow you to gain a deeper knowledge of your clients, stimulate discussion regarding their bank relationship and become a more valued business adviser.

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PROPER CREDIT FACILITY

Clients frequently use working capital to finance long-term assets, which creates a balance sheet mismatch and puts undue pressure on cash availability. Also, many companies do not have a line of credit that can be used to meet cash flow timing differences, such as seasonal inventory buildup or taking advantage of vendor discounts.

One of the most common errors small businesses make is using short-term credit to finance long-term purchases. This can affect cash availability to meet payroll, trade debt and tax payments. Matching the term and repayment for the acquired assets allows the company to meet borrowing needs and reserve cash for operations.

THE COST OF EXCESS CREDIT

There is always a cost for excess credit. Annual non-use fees or higher interest rates are the result.

Many clients believe it is important to obtain as much credit as possible because these dollars would be available for unexpected events. While that may be, business owners should know there are identifiable costs paid for that availability.

Each bank will factor non-use fees into its pricing to meet profitability targets if line usage is low. These fees are often assessed quarterly on the difference between the average borrowings and total loan commitment. If the borrower does not require the available credit, a credit reduction will lower non-use fees. These fees are assessed quarterly in arrears. Greater understanding of historical usage is available from the bank and proper forecasting can gauge the client's future needs.

TAKING ADVANTAGE OF ALTERNATIVE PRICING

Short-term fixed rates--often up to .5 percent lower than prime--are an attractive alternative to prime. Find out if these rates are offered at your client's...