Since the financial crisis of 2008, the way in which your bank interacts with you has probably changed considerably. It is increasingly important to prepare for such meetings in order to access their advice and financial support when needed.
Unless you are lucky enough to have a long-standing relationship with an experienced bank manager, it is likely that any lending request will go through an assessment process that draws on credit reference searches, account profiles and historic profitability. All a little bit too clinical, I hear you say. Especially when accountants are often aiming to optimise financial results with tax in mind, rather than the growth of your business and its associated funding needs.
If you can help your bank manager understand your business by explaining your goals and aspirations and the associated financial impact of your proposals, the response you get will often be more favourable.
Bankers are now looking to analyse net cash generation, to be satisfied that your business can cover the repayments on all debt including existing debts to other lenders. Furthermore, your bank manager is likely to sensitise the expected net cash-flow to allow for interest rate and economic fluctuations over the term of the debt.
- Share your business plans with your bank manager – even if you don’t need to borrow, use them as a sounding board. Their commentary and advice is free and may help in finalising and implementing your plans.
- Provide a copy of your business plan and budgets to your manager ahead of the meeting. This will give him/her time to digest all the information and allow a more meaningful discussion at the meeting.
- Update budgets regularly and share progress with your bank manager, providing commentary around any unexpected results. This helps build your managers confidence in you. Budgets will certainly never turn out to be spot on and bank managers understand this, however they are keen to see what actions you are taking to correct matters.
- Give some thought about the structure of any existing and new debt. Consider the life of the asset and tailor repayments accordingly.
- Be open to all available forms of lending. Bank policies have changed dramatically in the past 9 years and their preference is to use capital efficient asset finance and invoice finance instead of traditional overdrafts and loans. Get your manager to talk through the various options.
- Don’t hide bad news – this is often better than no information.
Why might my bank decline my request for increased facilities?
Firstly they should always explain the reasons why your request has been declined and put this in writing to you.
Some of the reasons include:
- Declining sales / profits
- Concerns over whether net cash-flow can service existing/new debt
- The amount of debt to equity is/will be too high
- Lending policy to specific sectors
- Lack of experience in new product/sector/market
- Lack of contribution – Bank not prepared to provide the full amount
- Business has weak balance sheet
- Insufficient security
If your request for increased facilities is declined purely due to the lack of tangible security, make sure you consider schemes such as the Enterprise Finance Guarantee Scheme (EFGS). The EFGS could help provide the Bank with sufficient insurance they need in order to provide support. Alternatively, the Banks now have to provide the opportunity for other lenders to consider your request (including Business Angels, Venture capital firms, Funding Circles and other Banks), but will require your authority to do so.
Building a good working relationship with your bank manager will pay dividends in the long term, providing confidence in each other and helping ensure that you get ongoing advice and financial support for your business.