Jo Haigh
The relationship with your bank has always has been a special relationship, but it is even more so now as options are much less than before as brands consolidate and debt becomes increasingly scarce.
Historically, we might have viewed this as a partnership, and one where both parties treated the other one with due respect. Sadly, and I am disappointed to acknowledge this, by and large this is no longer the case.
However for many businesses, particularly those having a difficult time or those wishing to grow, and who need funds to do so, it is a relationship that needs nurturing in order to get the best out of it.
However loathsome you may think your funder is, if they have a debt stake in your business and / or you want them to take more, then you need to create an environment which is likely to entice a funder to either stay in place or to elicit more funds as needed.
It has been said that sugar and honey catches more flies that vinegar and salt and by that I mean, however much it may grate, personally, you at least need to be as pleasant and agreeable as possible.
Honesty is also a no-brainer. Banks hate surprises (good or bad) so keep then in touch with all your developments and plans and don’t be afraid to ask for advice and guidance sooner rather than later.
Banks want three things:
- Confidence you can pay their interest rates and covenants are now usually three times operating profit to interest payable;
- Security – lots of it. Loan to lend values are going down every day and, worse still, so are asset values. Added to this banks rarely value assets at open market value; and
- Confidence you will trade on for years, after all they want you to continue to pay the interest, they don’t want to have to have a forced sale in order to collect the debt unless it’s a last resort.
Make sure you build head room into any projections as all funders discount your assumptions by as much as 20% so put it in so they can take it off.
It’s essential your bank understands your business cycle, is it seasonal for instance? How is the market changing? Some managers have 100’s of customers to look after and can’t possibly understand every market. Make sure they know yours; they are much more likely to help when you have a crisis.
Check your charges, although negotiations on terms are tough as choice is limited, at least you can check your aren’t being over charged. Try (a href=http://www.chargechecker.co.uk>www.chargechecker.co.uk</a>) to assess how accurate your monthly charges and costs are and, if they aren’t, make sure your bank knows and that they do something about it.
Jo Haigh is a Partner and Head of Corporate Finance for Corporate Finance Services LLP, with bases in London, Birmingham and Yorkshire, and a partner in the fds Group, a specialist training and development business. More >>
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