Gaining in The Short Term vs. Winning in The Long Run
For any business owner, increasing sales is always a goal in plans for the next quarter, six months or year. New business is important to any company's survival. A company that fails to generate new activity will — sooner or later — disappear.
But long-term relationships with clients or customers is also at the heart of a company’s continuity. We want customers who are loyal to us (this is why advertisers frequently target the 18-39 age groups in the hope of building lifelong brand loyalty), and we should also be loyal to customers. The best path to creating a lifelong business relationship? Always think of a client’s best interest.
Some examples: If you are a car dealer, would you suggest a less-expensive model that will be reliable for a middle-income, low-mileage driver instead of the newest model with all the bells and whistles? If you sell real estate, would you guide a first-time buyer to a small home they can afford with the hope that they will return to you in a few years when they need to move to a larger house?
In our industry — business lending — it’s always important to bring new clients into the fold. And we often set a goal to “book a deal” by the end of the week, or the end of a business cycle.
But are we always loyal to our clients and customers? Are those with direct contact with borrowers willing to forego some short-term income in exchange for helping a client succeed in the long run?
Here's a common business financing scenario: a client is ready to borrow money to expand their facility. He or she runs a successful business. As a matter of fact, your bank aided in their success with a small business loan early on to help them build their first location.
You know that their business could afford to borrow construction financing at your bank’s conventional rates; say, 20 percent down and a ten-year repayment schedule with a floating rate. Their new project would look good in your loan portfolio.
On the other hand, this borrower might be more comfortable with a so-called "alternative" business loan that you could provide through your bank. The big plus for the borrower is a low down-payment — 10 percent vs. the 20 percent cited above — and a fixed-rate repayment schedule for 25 years. However, the alternative loan may be less profitable for the bank in the short term.
You can choose whether to tell your borrower about the variety of lending programs available that will likely allow him or her to keep more cash on hand for other expenses. If you make the borrower aware of alternatives, you will be viewed as a trusted business advisor who brings solutions to the table. This builds loyalty, makes you part of the team and less likely to be replaced.
Now, let's switch and talk to potential business borrowers. A strong banking relationship is important for your success, and you can help yourself by asking your lender for suggestions on getting the most affordable financing. Work with a banker who will be a value-added partner in your success.
Is taking out a bank loan at conventional terms in your best interest? (It might be if you have enough money to take care of payroll and inventory while paying off a loan over a shorter period of time.) Or will your company more easily afford an alternative loan that eases your cash flow by requiring less up front while allowing you a longer repayment period and lower monthly payments?
Whether you are a customer or a business person— a buyer or seller — loyalty can be earned during every business transaction. Along with personal relationships, successful business relationships are important to our lifelong wellbeing.
Jean Wojtowicz is president of Cambridge Capital Management Corp.