How good is your Bank Relationship?
Dear Business Owner,
Welcome to the December issue of Game Plans for Growth, the newsletter for business Owners and Managers. With the recent credit crunch still hitting the headlines we look at how to nurture your bank relationship. For those of you who feel that ‘bank’ and ‘relationship’ can not be mentioned together in the same sentence, there is hope and we look at the best way to find and win over your bank manager.
If you find this newsletter helpful please forward it onto your colleagues and please let me know; feedback is always great to receive!
In a recent CBI survey of small and medium sized business managers, although only 12% have experienced a tightening in bank credit to date, a further 53% expected a tougher time with their banks over the coming year. It is clear that if you have a good bank relationship that you should do all you can to retain it; if you do not, then find the right one as soon as possible.
Finding the right bank manager is not easy. You will need to:
- find the right bank
- locate the right level of manager
- present your business professionally
- and then turn your bank manager into an internal champion for your business (if you don’t feel that this describes your manager then no other bank official will fight your corner).
Don’t forget that you must get on with your bank manager; if you don’t when business is good then it does not bode well for tougher times.
What happens if your bank calls in your overdraft or loan? The first step is that your manager has to hand over responsibility to a manager in the banks ‘recovery unit’. Then the years of patiently building your bank relationship are removed and with it that informal ‘flexibility’ which you may need. The recovery unit manager will be single minded about recovering as much of your borrowing as possible. If you feel that your current relationship could be headed this way then talk to a trusted adviser before it is too late.
Finding the right Bank
The main high street banks all have different strengths and weaknesses so first determine what your key criteria are. For instance an efficient on line banking service may be critical, alternatively the rate of interest charged or earned may be a bigger factor. If you rarely use local bank services then your bank choice can be widened to include banks like Clydesdale.
Finding the right Manager
Each bank has different levels of bank manager and if you chose the incorrect level then they will not have the internal influence to help you. In addition when you wish to have some facility flexibility this becomes much harder to obtain. Use an adviser such as vfdnet to help introduce you to the right level of bank manager within each bank.
The Manager you present to will almost certainly not be taking the final decision, as this will be done by the bank’s credit committee. Therefore rather than having a meeting with the Manager and relying on him taking down the right notes, it is advisable to prepare a full narrative and financial business plan. This way the manager should just be able to write a short covering note supporting the plan to go with your business plan to Credit.
We covered the detailed content of business plans in our earlier newsletter (click here to see this).
Which to Choose?
These are some of the key criteria to consider:
- Security required
- Interest rate offered
- Flexibility of repayments
- Bank Covenants
- Operational requirements eg online banking
- Likely future requirements
The crunch question to answer is ‘have I found my internal champion?‘
The End Result
The client had a funding need which was part operational and part to facilitate an acquisition. vfdnet assessed the need, advised on the best mix of working capital and term loan, and together with the owners prepared a professional business plan. Three back to back meetings were then arranged with the right banks and right managers and the plan was presented. The 3 banks then made offers within 48 hours and the client had a choice of bank. The client achieved his ‘internal champion’ and made a saving on his interest burden as well!