Column: Change, complexity define bank-business relations

BY MARTIN ANDERSON

Fairfield County is a hot spot for middle-market companies. More middle-market businesses have chosen to set up shop here than anywhere else in the state. Over the past 20 years, these companies have grown to become more globally competitive and sophisticated. Simultaneously, the financial and banking needs of these companies have become more complex and diverse and, as a result, the banking environment has been forced to follow suit.

There are a number of factors attributed to the increasing complexity and sophistication of today”™s business landscape. Globalization and technology are two of the biggest influencers driving the need and availability for more innovative financial products and services.

“Fairfield County has adapted to the explosive forces of a globalized economy over the last two decades,” said Chris Bruhl, president and CEO of The Business Council of Fairfield County. “Our local companies ”” large, medium and small ”” are opting to source or sell goods throughout Asia, Europe and Latin America. Their needs have changed as a result. Banks have evolved in response. They”™ve expanded their offerings to accommodate and have found creative ways to meet new needs, such as by partnering up with private equity firms. The sheer diversity of the financial community in Fairfield County has made it possible for locally based businesses to find sophisticated financial solutions in their own backyard.”

Middle-market companies are buying and selling much differently today than years ago. Local companies are conducting business with customers and suppliers on every continent, presenting opportunities to receive and spend in foreign currencies. Middle-market companies that used to go to a bank for basic financing and banking needs are now executing foreign currency transactions and utilizing sophisticated hedging products to protect against exchange and interest rate risks.

I recently closed a $5 million term loan for a major retailer to assist the company”™s footprint expansion and fixed the rate using an interest rate swap. In addition to providing a competitive low fixed rate, the swap provided a customized hedging strategy.

Advancement in technology is another catalyst for the evolution of the complex business landscape and its financing requirements. While the Internet accelerated the globalization of the middle market, at the same time, technology has also opened the floodgates for hackers and cybercriminals. Companies are now seeking fraud services to protect against security threats such as data hacks or wire fraud ”” threats that simply were not as commonplace 20 years ago.

Fraud prevention ranks among the most critical concerns of business owners I speak to, and 61 percent of companies experience attempted or actual payments fraud, according to the 2014 Annual Payments Fraud and Control Survey by the Association for Financial Professionals. Commercial banks must provide sophisticated fraud prevention solutions and fraud mitigation guidance and continually improve these practices to stay ahead of the ongoing cybersecurity risk. Remote deposit capture, a system that allows a customer to scan checks remotely and transmit the check images to a bank for deposit, and sophisticated lockbox banking products are also good examples of how technology is helping businesses increase operational efficiency and better manage cash flow.

The speed of business today requires companies to react quickly to the increasingly complex market. Commercial businesses have had to augment operating controls and banks have found ways to put some of those controls on-site with customers. Remote deposit capture allows companies to submit deposits directly from their office, providing faster access to funds and improving control over cash. Sophisticated lockbox products also help commercial clients process receipts more quickly. Gone is the clerical burden of manually collecting and processing receipts. Access to local banking centers has become less important to my clients due to the reliability of remote connectivity.

One of the biggest changes in middle-market banking is the availability of new sources of capital and lending. Middle-market clients increasingly turn to the capital markets for specialized mezzanine financing and seek equity capital from private equity firms. There are a number of strategies that a company can employ to finance an acquisition or provide liquidity for shareholders in concert with the right bank and advisory firm.

Not only has the middle-market landscape become more sophisticated, but so have financial relationships. A good banking partner is one that provides a full range of financial products, understands the owner”™s business and offers sound advice. Business owners demand efficiency and tend not to use multiple banks if a one-bank solution meets their all their needs. Data sourced by Greenwich Associates confirms that companies typically use one provider for their banking needs.

In order to serve as a one-stop-shop, many banks are customizing products and expanding relationships in order to better serve customers. Bankers who can introduce their clients to a network of financial alternatives become indispensable. Companies seeking a long-term financial partner should look for a bank that has relationships with private equity firms and investment banks and one that is active in local industry groups. Companies with lending needs should look for banks that have experience with government lending programs such as U.S. Small Business Administration or Export-Import Bank loans, programs with middle-market reach.

Over the past 20 years, commercial banks have transformed into sophisticated finance companies. Middle-market companies seeking a banking partner should look for a solid institution that is financially stable, innovative and flexible in its product offerings and financial solutions and, perhaps most importantly, maintains a long-term view of client relationship.

Martin Anderson is a senior vice president at Webster Bank, based in Waterbury, in its Stamford-based middle-market banking division, where he manages commercial banking relationships. He previously served as vice president, senior relationship manager, at Bridgeport-based People”™s United Bank.