Don't let a compressed financial services market leave you short-changed.

Compression, when used in the context of describing the decreasing number of banks available to appropriately serve commercial borrowers, has created an environment where developers and real estate investors have less room to move and expand.

Yet, there are strategies for growth and the successful procurement of capital amidst today's rapid bank consolidation and restructuring. When there is consolidation and restructuring, the key is to diversify.

To adapt, the commercial borrower/lender relationship must change. In fact, this change is already occurring anyway. For example, Fleet, a primary commercial lender in the metropolitan-NY area is now Bank of America (Charlotte, N.C.). JP Morgan Chase has merged with BankOne, with leadership being consolidated in Chicago, Ill. Most recently, Capital One (McLean, Va.), a leading issuer of consumer credit cards, bought NorthFork.

To the commercial lender and his or her clients at these affected institutions, compression results in modified lending parameters and transactions once perceived "normal" are now met with resistance and added scrutiny. Lenders have also been shuffled or rotated and are in charge of either greater or smaller geographic areas. Some have left for competitor institutions, leaving junior representatives to attempt to catch up on the intricacies of long-term relationships.

To the commercial borrower, all this chaos translates to frustration.

The acquired institutions are influenced by their new owners, which in many cases are based out of a completely different geographic area. New management may have a dissimilar perspective of the New York-metro region, lacking the knowledge of what it takes to satisfy a sophisticated commercial borrower and get a deal closed. Similarly, new management may alter lending criteria, possibly resulting in a tentative approach to loan transactions that were once considered appropriate. Ultimately, the borrowing process is hindered by slower decision-making.

In situations where borrowers are fortunate to still have contact with the lender with whom they worked prior to a consolidation or merger, the process can still be slowed. New management will rarely have 100% confidence in the lending staff and will most likely be looking over the shoulder of even seasoned lenders.

While the banking landscape changes, some things do not.

Commercial real estate investors, firms and developers have forever, and always will need to, have a team that is able to quickly and professionally review diverse types of real estate proposals. But, to successfully finance the growth of commercial real estate portfolios in this environment, New York-area investors, as well as those in other markets, must diversify their borrowing activities and market contacts. Those with one lending institution and a single commercial lender in a market that continues to change, risk being caught short-handed.

Borrowers protect themselves from this situation by establishing long-term relationships with multiple banks and lenders. This does not translate to merely shopping a loan with a different lender and then heading back to the usual source after thanking the others for their time and consideration. It means actually building a relationship and closing a deal with an alternate funding source.

To accomplish this, one will not likely have to sacrifice on rates or terms due to the nature of the competitive environment; however, there will be some added time and paperwork--all necessary to begin a new relationship with a second or third bank.

Such an approach may seem like a burden at present, particularly in the case where things are being handled well by a current lender, yet the payoff can be big if corporate changes affect your lender.

The advantage to a commercial real estate firm's diversification of borrowing activities lies in having another place to turn when one bank begins to go through a time of change. The savvy investor will have established relationships at other banks that can process their next deal.

The key here is "established." An existing relationship with a bank will ensure a streamlined approach to handling a loan that requires a good deal of analysis and servicing.

Conversely, starting a relationship from scratch in a time of need can place the borrower at a disadvantage. This is not to say that a fresh lender is not going to effectively attempt to handle a deal, but someone familiar with your business, its holdings, the investment itself, not to mention the borrower is simply better positioned for a quick response.

In short, funding sources should be diversified in any portfolio.

To select the additional, alternative or even primary lender, look for lending sources that offer rapid response and dedicated lenders to your deal. When you find such a lender, give them a shot at a deal and if they are competitive with your current funding source, use that moment as an opportunity to diversify.

If deals are particularly sensitive to timing and rate, it might not be the best time to experiment. Stick with the usual or primary lender, because shopping a new bank and executing a deal elsewhere while a new bank gets to know you may impede your ability to establish a long-term relationship.

Local lenders are best. If your firm's holdings or your investments are in a variety of geographical locations, ensure your borrowing relationships are as well. Look for a lender that handles your specific local area(s). These entities, which are typically smaller institutions, typically understand market forces and the subtleties that exist from one city block to the next. Additionally, together you will all share a common interest in the local community.

Do not randomly diversify. As with real estate, be sure to assess and identify opportunity and best uses. Have a strategy in place.

Use each financial institution to the best of its ability: e.g. large lenders, large loans and pricing; smaller lenders for quick service and more intricate positions. Take advantage of the short loan approval-tree at small and mid-sized banks, such as Signature Bank, where deposit and operating relationships can also factor into the equation.

Finally, remember where the bank sits. Protection of a bank's assets and the expansion of a client relationship are the foremost goals at the institution. If you have (or wish to have) a long-term relationship with a particular bank, most will find a way to be flexible partners in the growth of your business.

In the event you feel your borrowing activities are being negatively affected by compression in the marketplace, turn to a responsive local source. Hopefully they already know you well, affording you a leg up on the lending process.

By ROBERT J. ROTHSCHILD, SENIOR VICE PRESIDENT, SIGNATURE BANK