If banker relationships can be so beneficial, why do so many business owners suffer through poor ones, or cultivate none at all?  Often, the problem is that entrepreneurs don't understand the restraints and needs of bankers.  Think of capital as a food chain, suggests Raymond Smilor, vice president of the Center for Entrepreneurial Leadership, Kauffman Foundation, in Kansas City, Missouri.  Early in the food chain, capital should come from private investors such as family and friends.  Later, professional investors such as venture capitalists can be tapped.  Only when the business has solid assets and a steady track record is it ready for a banker.  Smilor says that owners of emerging businesses often struggle with their bankers because they ask for too much, given the immaturity of their companies.

Bankers, by law and temperament, are not investors.  Risk and reward typically have a direct relationship -- the higher the risk, the higher the reward.  Investors decide to put money into an enterprise without guarantees they will get their money back, let alone a return, because the rewards can be large if the business succeeds.  However, lenders such as banks don't have the same lucrative potential.  Even if the money lent is the catalyst for putting a firm on the fast track to success, the most the banker can expect to get back is the capital (plus interest) in timely payments.  That is one reason why bankers and entrepreneurs so often clash. The entrepreneur asks the banker to take investor risk, while the banker's position is that he can only take credit risk because of the limited potential payoff.  Until the banker and entrepreneur speak on the same wavelength, and understand each other's vantage point, a good relationship can't exist.

Communication -- or lack of -- is probably the greatest area of weakness between entrepreneurs and bankers.  When the news is bad, owners tend to shut down lines of communication, thinking the banker will be upset.  While the banker may understandably be concerned, his reaction will be far less negative than if he is not told what is going on.  Nothing upsets a banker more than surprises.

Not all weaknesses rest with the business owner, however.  Bankers change jobs more frequently than politicians stereotypically change their minds, so many may be unfamiliar with their customers and wary of extending credit even when the company is deserving.

Relationships, whether personal or business, are always challenging.  But there are certain things an entrepreneur can do to help create a climate that is conducive to fostering a productive, long-lasting relationship with a banker.

Excerpted with permission from Small Business Success Magazine,  produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration.