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🏦 Banking Relationships

Strong banking relationships are critical for construction companies. Your bank can be your biggest ally or biggest obstacle.

Why Banking Relationships Matter​

Construction-Specific Needs​

  • Lines of credit - For cash flow gaps
  • Bonding support - Letters of credit for bonds
  • Equipment financing - Loans for equipment purchases
  • Project financing - Construction loans
  • Wire transfers - Fast payment processing
  • Online banking - Payroll, A/P automation

Choosing the Right Bank​

What to Look For​

  • Construction experience - Understands your industry
  • Relationship banking - Not just transactional
  • Local presence - Knows your market
  • Technology - Good online/mobile banking
  • Fees - Reasonable fee structure
  • Availability - Accessible when you need them

Red Flags​

  • ❌ No construction experience - Won't understand your needs
  • ❌ High fees - Eats into your margins
  • ❌ Slow response - Can't get answers when needed
  • ❌ No relationship manager - You're just a number

Building the Relationship​

Initial Setup​

When opening accounts:

  • Meet with relationship manager personally
  • Explain your business model
  • Share financial statements
  • Discuss your growth plans
  • Ask about their construction experience

Regular Communication​

Monthly:

  • Send financial statements
  • Update on major projects
  • Discuss cash flow needs

Quarterly:

  • Meet in person (if possible)
  • Review relationship
  • Discuss upcoming needs

Annually:

  • Annual review meeting
  • Discuss growth plans
  • Review credit facilities

Types of Banking Products​

Operating Accounts​

Basic checking:

  • Day-to-day operations
  • Payroll processing
  • Vendor payments
  • Low or no fees

Business savings:

  • Reserve funds
  • Earn interest
  • Easy access

Credit Facilities​

Line of credit:

  • Revolving credit
  • Use as needed
  • Pay interest only on what you use
  • Typical: 1-2% over prime

Term loans:

  • Equipment purchases
  • Fixed payments
  • Lower rates than LOC
  • Typical: 3-7 years

Specialized Products​

Letters of credit:

  • For bonding
  • Guarantee to surety
  • Fee-based

Construction loans:

  • Project-specific financing
  • Draw-based disbursements
  • Higher rates

What Banks Need to See​

Financial Information​

  • Financial statements - Monthly P&L, balance sheet
  • Job cost reports - WIP schedule
  • Aging reports - AR and AP aging
  • Cash flow projections - 13-week rolling forecast
  • Tax returns - Last 2-3 years

Business Information​

  • Project pipeline - Upcoming work
  • Backlog - Current backlog
  • Bonding capacity - Current and available
  • Key personnel - Who runs the company
  • Business plan - Growth strategy

Maintaining Good Standing​

Best Practices​

  1. Stay current - Pay on time, always
  2. Communicate early - If problems arise, tell them first
  3. Provide updates - Regular financial updates
  4. Use their services - Use their products (builds relationship)
  5. Be transparent - Honest about challenges

What Hurts Relationships​

  • ❌ Surprises - Bad news they didn't see coming
  • ❌ Late payments - Missing loan payments
  • ❌ Overdrafts - Frequent overdrafts
  • ❌ No communication - Radio silence
  • ❌ Poor financials - Declining performance

When to Switch Banks​

Consider Switching If:​

  • Poor service - Can't get answers
  • High fees - Fees eating profits
  • No construction experience - Don't understand your needs
  • Limited products - Can't meet your needs
  • Relationship manager changes - New person doesn't get it

How to Switch​

  1. Find new bank - Research and meet with banks
  2. Open new accounts - Set up new accounts
  3. Transfer relationships - Move payroll, A/P, etc.
  4. Close old accounts - After everything moved
  5. Notify vendors - Update payment info

Working with Multiple Banks​

When It Makes Sense​

  • Different products - One for LOC, one for equipment
  • Geographic - Different banks in different markets
  • Specialized needs - Construction bank + local bank
  • Risk diversification - Don't put all eggs in one basket

Challenges​

  • More relationships to manage
  • More fees
  • More complexity
  • Harder to get larger credit facilities

Pro Tips​

Financial Reporting​

  • Be consistent - Same format every month
  • Be timely - Get statements out on time
  • Be accurate - No surprises later
  • Explain variances - If numbers look off, explain why

Cash Flow Management​

  • Forecast regularly - 13-week rolling forecast
  • Communicate needs early - Don't wait until you need money
  • Show discipline - Use credit wisely
  • Build reserves - Show you're building cash
Build Before You Need

Start building banking relationships before you need them. It's much easier to get credit when you don't need it.