A bold claim perhaps, but many business owners and directors see their bank manager in a very negative light. Often this is with very good reason, even if we only believe 50% of the stories in the press.
There is an old saying that parents often use with children around Christmas concerning Santa Claus, “you need to believe to receive.” This statement could, with a little poetic licence, be applied to an SME’s business relationship with their bank manager!
Fine words and a brave boast, but how do you make it happen?
You need to:
- Believe that you can locally influence them, even in this world of matrix management, Head Office Credit Policy and the dreaded ”computer says no!”
- Demonstrate behaviours employing strategies and tactics to get their attention. This in turn should lead to you receive a better, more personal service, thus increasing your chances of that all-important yes if your business is looking to borrow.
You need to show the bank that you are a ‘Winning Business’, and by its very definition, be a business that they should and want to invest time in.
A “Winning Business”, by definition therefore, should be one that a bank wants to lend to, providing that you shape your borrowing proposal in the right way.
SME’s need to borrow in the right format for the right reasons. What do I mean by that?
Short term borrowing to fund trading is known as funding for Working Capital. This was traditionally sourced by a bank overdraft, usually on an unsecured basis up to £25k. Now it is sourced more frequently by Invoice Financing. Why the change?
Well, the banking masters in Europe have enforced certain capital adequacy requirements on all the banks. In very simple terms, this means that in addition to the lend itself, they need to provide a default contingency in their balance sheet, more often than not around 100% of the borrowing itself.
So for every £10k that you borrow on an unsecured basis they might have to set aside an additional £10k in case of “non-payment”- meaning that they cannot lend that money, so need to make the money they are lending work even harder for them!
The answer? look at Invoice Financing as a facility that can grow in line with your order book and sales ledger. It doesn’t affect your relationship or lending capability with your banking branch.
Don’t use these shorter term finance options for longer term purchases such as vehicles or equipment. Look at taking a loan over the life of (but not longer than) the asset itself. This spreads the repayments in line with the working life of the asset and therefore its future income generating power.
Winning businesses believe in making their investments work hard for them by receiving a benefit now, but paying for it over a longer term.
Commercial bank loans fulfil this requirement as also does Asset Finance (HP, Contract Hire or Leasing). Have a word with your accountant about the differences between each.
If you have a good business credit rating and a set of profitable accounts which show good repayment capability, then this how you can get maximum leverage from your business and its banking facilities.
- Invoice financing for your Working Capital (underpinned by your sales ledger via your Bank’s Commercial Finance Dept. or A N Other Bank)
- Asset Finance for your Computer Equipment (Bank’s Asset Finance Company or An Other Bank)
- Commercial Vehicle Loan from your business account manager himself, which up to £25k will usually be unsecured (Ltd Companies will need a Director’s guarantee, but no other tangible security).
This is not Double Bubble, it is Triple Bubble!
Three elements of bank related lending, all without tangible security to three different arms of the same bank (or not as the case might be).
Now who is the Devil? You are… a crafty one!
“Well then Graham, how do I stay a crafty devil and one step ahead of the bank manager,” I hear you ask. Well here are some tips on do’s and don’ts to help you achieve this:
- Understand the Bank’s Security requirements, when and what they want or need. Remember the two might not be the same!
- ID what the Bank is looking for in the deal. Is its focus on interest rate, arrangement fee, security or length of loan? If you can give it to them then do, but try and negotiate something else in return!
- Get all deal offers in writing and check that the author has the authority to offer and sanction. Sometimes they don’t and it can all end in tears, frustration and recriminations. Show your professionalism by asking.
- 4. Know your local management team. This is key! Identify their boss, deputy and support team. Get contact numbers and addresses. Make it personal and invite them to visit your business and see what you do. This will make it harder for them to look you in the eye and say no and they will fight harder for you on appeal if Head Office or their local boss initially says no.
- Borrow more than you think that you will need! Why? because “Bank Managers are like Fagin- they don’t like you coming back to the table and asking for more!”
Now some equally important don’ts
- Make unrealistic projection statements that you cannot back up with facts/evidence/research.
- Breech existing borrowing arrangements or anticipate new agreements without asking, negotiating first.
- Attempt to “pull the wool over their eyes”.
- Expect them to take all the risk- you must “put some skin in the game” yourself and be prepared, these days, to start these negotiations at 50/ 50.
Obviously I cannot guarantee that your bank manager will be a ‘cuddly teddybear,’ but if you follow the above suggestions you will have shown them that you have the attributes of a ‘Winning Business’ and provided them with no good reason to give you a “devil” of a time. Why would they not want to support a Winning Business like yours?
If you need a hand to help you go into the ‘devil’s’ lair and negotiate a pact on your behalf, then just give me, Graham Hall of Hall of Finance, a ring on 07889 780170 or drop me an email.