Do you feel your bank works for you, or against you? Here Rod Whitehead and Helen Sallis of Independent Banking Professionals suggest how you can get more from what can be a vexed relationship.
Banks often get a bad press, and sometimes deservedly so, but they are businesses like any other - they grow if you do. Yet they have differing criteria and appetites, so how do you really get your bank to work with you and for you?
Rod Whitehead and Helen Sallis are former senior lending managers with a mainstream bank background and between them nearly 80 years’ experience. Now they run Independent Banking Professionals working directly with clients. Here’s their take on managing your bank manager.
1. Knowing me, knowing you
Contrary to what some opinion bank managers are human! Get to know them, and get them to know you. Working together will help you both be successful. Tell them the good things and how it will improve your business, explain to them the bad things and what you are doing about it, and if you need help to do something about it then don’t be afraid to ask!
2. Issue an invite
How well do you know the person that is key to the relationship with your bank? If you don’t have any burning issues you perhaps don’t see them too often. When you do need something, you are opening from a weaker position if they need to start to get to know you and your business properly. Pick the phone up occasionally and tell them what is happening in your business, ask them to drop in for a coffee for 20 minutes so you can update them on the good things that are happening but also on where the issues are.
3. Time is of the essence
Be honest. If you have a problem then be up front with it and tell your bank what you are doing about it. If possible, talk to them before it becomes an issue and see what help might be available. Banks will generally work with you to get through issues if they know the full story and can see a plan to resolve it.
Things get difficult when banks are only informed of problems at the eleventh hour. Then they start to question not only why you’ve left it so late to inform them, but whether there are other problems they don’t know about, and perhaps, just how good you are at managing your business and how safe their money is.
4. Know what they know
Banks hold masses of information about all sorts of topics - information about different countries that might be invaluable if you are starting to export. They often have industry sector reports so you get an independent view of what’s happening in your industry and you may be able to gauge how you think your business is performing compared to the general view of your sector.
Also, unless you are a really niche operation, there’s a good chance your manager does currently, or has previously had, businesses just like yours in their portfolio. Find out, what things can they suggest that they’ve seen before, whether there are other suppliers you can look at, how they see the market, and how they feel about the performance of your business.
Bank managers generally have connections with a host of other professionals and can introduce you to lawyers, accountants, and people that can help you when you need it. Not just that, but they can introduce you to other clients where you might do business together, but if you don’t ask, you won’t know.
5. Time to change
At some point in time your bank manger will change for whatever reason. Whilst this may be frustrating, the important thing is to make the time to meet with your new manager. They will have read the file so do not necessarily need you to go over too much background but will be interested in making their own opinion of you and your business.
Additionally, just because your facilities have been set up in a certain structure and at a certain price for previous years, your manager will want to review them at least annually. That is the time to question whether they are working for you, whether they are structured correctly and whether they are at a price which reflects the current market place. Your manager will be coming with his/her own objectives for the next 12 months so make sure you are also prepared as to what you want out of the relationship.
6. Help your bank to help you
Often, and particularly for larger facilities, banks will put covenants in their facility letters. Covenants measure your business against pre-set criteria and if you breach those criteria then that opens the door for a discussion/revision/re-pricing etc. The reverse should also be true - invite the bank in to management meetings maybe quarterly or every half year so it understands the issues you face, the things you deal with, and hopefully it will have a positive contribution to the discussion.
Tell your bank what you want from it - maybe quarterly discussions, feedback on any accounting information you send, details of changes in bank policy or appetite that might affect your sector, new products or services that might support your business etc.
If you plan to change things that will require additional finance, bring your bank in right at the start - it should help you think about how to structure funding, talk to you about the criteria and how you could put a deal together, and it can often talk to its credit teams about plans and gain an indication of the sort of facilities it can get approved. If you work this plan up for a few weeks or months but leave it until you’ve done all that and then go to your bank, it will be starting from the beginning while you are at the stage of wanting an answer - help each other get what you want.
7. When did you last negotiate?
Banks provide facilities for clients and the pricing, terms and conditions are generally based around the risk the bank perceives in lending you the money. It is quite common for businesses to be presented with a facility letter and the interest rate and fees (hopefully) explained. By then, it’s too late - the bank’s credit team will have approved the borrowing on those terms and conditions, with that price, and if you don’t accept it then the process almost begins again.
It’s important that you are prepared for discussions (your manager will be) and come to a negotiated position before the manager sends the papers up to the credit team. Talk to your bank manager about perceived risks, what rate they propose to apply, and why. What changes could be made to reduce the rate or the fee, what terms and conditions do they propose, what do they want to achieve with those terms and check that you can meet those terms on your current performance.
More likely than not, the bank will want some security because it is lending you depositors’ money. So security is a fair point, but think about what you would be prepared to give, what your limitations are, what gives the bank the comfort it needs without you giving the proverbial shirt off your back. If this goes wrong, the chances are that security will be called upon - what does that mean for you, your family, your dependants?