Podcast 112 Consolidating Financial Services

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Ian Portsmouth:

Welcome to the Business Coach Podcast, an advice-oriented series that tackles the top issues and opportunities facing Canada’s small businesses. I’m your host, Ian Portsmouth, the Editor of PROFIT Magazine and we’ve developed this podcast in cooperation with BMO Bank of Montreal. 

No business owner wants to spend a minute or a penny more on financial services than she has to. But when you and your business operate with the help of multiple financial institutions, you could be giving up precious time and money. The simple way to avoid that situation is to consolidate all your business and personal banking with a single financial institution. So, joining me to talk more about the benefits and process of consolidation is Darrel Moriama, Senior Vice-President of Commercial Banking at BMO Bank of Montreal. Darrel joins me by phone from his office in Vancouver. Darrel, welcome once again to the Business Coach Podcast.

Darrel Moriama: Always a pleasure Ian.

Ian: So Darrel, let’s start somewhere other than consolidation. We are in uncertain economic times right now and I think most business owners are wondering what the current lending environment is for small and mid-size businesses. What can you tell us about that?

Darrel: Ian, I think the current environment in Canada is certainly still very highly competitive among financial institutions. Most F.I.s know these segments are very attractive; they are very stable and can lead to much more business both commercial and personal. From our perspective, the risk is spread amongst many different companies. So not putting everything with one company would be a better risk for us rather than having all of our eggs in one particular basket.

Ian: Now, before get into the benefits of consolidating accounts and that kind of thing, let’s talk about what consolidation means on your side of the desk. So what kinds of products and services are we talking about when we use the word consolidation and what degree of consolidation is necessary before a business owner accrues any sort of noticeable benefit?

Darrel: Well, we are talking about all the banking services. Accounts, operating and longer term financing requirements, mortgages, cash management, investments, foreign exchange, you name it. The more products a bank has with a company, the more opportunity to provide discounts on pricing and on structure. You may even see a different security structure that is more flexible, if all services are with one FI. So there is no concern about ranking, insecurity or anything like that. In terms of a particular number of products, I don’t think there is a hard and fast rule, but we’re looking for the majority of those products to be with us.

Ian: And are you necessarily looking for personal and business?

Darrel: A lot of our clients are actually asking that of us. They do like to have a one stop shop if at all possible. And certainly, we can accommodate and do like to have as much of the client’s business as possible. These are very very important clients to us, very good clients for us and we actually do like to do that.

Ian: Now, on what types of products or loan will you offer that discount in exchange for more volume and how steep might those discounts get?

Darrel:

Well, it certainly depends on the situation. But if a company has most of their banking with us, we would certainly take into account the overall relationship and make this a win-win for the customer and for the bank. As I mentioned, this is a very competitive market, so if we can save the company money or relax security requirements, it is certainly a leg up and again we value these clients, we want to keep these clients. So we are going to be discounting as much as possible.

Ian: Will consolidation make the business owner more credit worthy in the eyes of the bank?

Darrel: I don’t think consolidation will make the business owner more credit worthy as that really would be based on historical performance. What it does do is allow the banker more latitude in granting the credit and structuring the terms, as you are not concerned that more debt is going to be granted elsewhere or that security priority will be a factor.

Ian: So Darrel, on that note, I suppose that having all of your financial services and therefore all of the information related to those services at one institution might actually expedite the credit approval process. Is that true?

Darrel: Absolutely. If you are going in for one credit request with a series of products through our bank, it’s done all at the same time, whereas, if you were having your credit at various banks, you would have to apply through their credit processes; it could be tedious, you could be looking at four different banks involved and that might take a lot more time and effort.

Ian: Now, everyone wants to work with a banker who knows his or her business, or his or her personal financial situation. If one consolidates her business at a bank, is she more likely to work with a single person or maybe two people at the bank?

Darrel: Yes, very likely. Most small business owners really are the company and most we’ve talked to would like to visit a one stop shop for their financial institution. This makes it much more convenient, much more time efficient. Larger accounts and multinational corporations or very large mid-market may require a more specialized lending and therefore the relationship managers would likely bring in a personal banker for that circumstance. But for the majority of our small business bankers, absolutely, it would be one person.

Ian: Now, how does a business owner ensure that this consolidation pays off? Is this something that they should point out to their relationship manager? Hey, I have consolidated all of my financial services at your institution, what can you do for me? Or is the relationship manager likely going to notice and be proactive and offering some sort of deal?

Darrel: If your banker is being proactive and understands your value, he or she will ensure your terms are very competitive on an on-going basis. Again, from my perspective, it’s a very competitive market and you should feel comfortable that your relationship manager is looking after your best interest. This doesn’t always mean the cheapest financing but rather a competitive cost structure, better use of your cash, proactive advice and reasonable collateral.

Ian: And the benefits of consolidation; are they granted at the discretion of your banker or to put it in another way, is the quantity of benefits granted at the discretion of the banker?

Darrel: Most of our relationship managers have a certain degree of discretion. Their area managers will have a higher level of discretion and the district executive has even more discretion. It’s certainly positive to work with a bank that has a fair degree of local autonomy and can make decisions based on local market conditions.

Ian: Darrel, my final question is inspired by my experiences with many entrepreneurs who actually like to keep multiple financial institutions in the mix so that they can play them off one another. They feel that it gives them more negotiating power. So that’s probably the strongest counter argument to consolidation, how would you size up the benefits of one approach versus the other?

Darrel: Well, I firmly believe that if the business has solid potential for sustained cash flow, you are going to be in a position to discuss this with any number of banks. But just because you have financing with another bank doesn’t ensure you’ll get additional credit from them. So, I still firmly believe that having most of your financing or all of your financing with one financial institution is definitely the way to go.

Ian: Well Darrel, we’ll keep inviting you back to the Business Coach Podcast because you are so well informed and refreshingly candid. So thank you kindly for your contribution this time around.

Darrel: My pleasure. Thank you very much.

Ian: Based in Vancouver, Darrel Moriama is Senior Vice-President of Commercial Banking at BMO Bank of Montreal.