As a growing business your bank may be your worst enemy or a trusted source of finance and business advice.
The background
As you’ve probably realised, the key to making commercial banking work can be summed up in one word: relationship. It’s imperative that you find a bank you want to stay with for the long haul – switching may not be the costly exercise it once was but it will still involve your time and money that can be better spent elsewhere.
Questions to ask
Competition is fierce in the corporate banking business – it’s no longer confined to the major High Street players. If you are considering switching to a new commercial banking provider, ask yourself the following. Will you have a dedicated business manager to deal with, and more importantly, do you get on with them, as you will need to be in touch with them on a regular basis. Does the bank provide telephone and internet banking? While a local branch is handy, you need to know you can check statements, interact with the bank, transfer money, and complete other key transactions, such as payroll or applying for finance. You’ll also want to ask what charges are involved for transactions you make? Don’t be afraid to negotiate better interest rates and lower charges.
Your options
Consider commercial banking options for not only your immediate requirements, but also for how those needs will change as your business expands. You may find that as your business grows, the original terms and conditions you signed up to may no longer be appropriate. Commercial banking providers have a range of options when it comes to covering the cost of expansion. For any bank you consider, look at its range of services and its proclivity for lending, as well as its record regarding the Small Firms Loan Guarantee (SFLG) scheme, which can enable you to get your hands on up to £250,000. For a list of participating members, visit the Department for Business, Enterprise and Regulatory Reform website at www.berr.gov.uk and look within the small business ‘access to finance’ section or search for small firms loan guarantee.
At some stage you may look to secure a larger bank loan for expansion, combine raising private equity with debt in a mezzanine arrangement, use invoice and asset-based finance, or leasing. It’s worth selecting your bank strategically with this in mind. Flexibility is key and banks with a leaning towards smaller and growing businesses or those with sector-specialist divisions may suit your needs best. Don’t expect this to fall under the jurisdiction of one bank manager. Specialist risk assessment teams within banks use complicated credit scoring matrices to make decisions, based on your ability to meet repayments and interest charges.
Need to know
Above all, your corporate banking provider wants you be realistic about your risks. Ensure you keep them up to date with regards to your business plan – it means they won’t be taken by surprise if you need to raise finance for your next stage of growth. Be proactive in this area by updating early iterations of your plan as your business becomes more sophisticated. Furnish the bank with information about your management team and any additions there, market knowledge and research, realistic and stretch expectations, as well as a detailed set of management accounts. Don’t shy away from making your corporate banking provider aware of any difficulties you are experiencing – it’s far better to negotiate new terms with the bank rather than risk breaching your terms of contract. This includes occasions when you may need to extend your overdraft for a short period. Keep regular records of all correspondence and conversations, in case you need to refer back to them.
Review your accounts and your corporate banking provider’s service every year and compare rates with others to see if you are still getting the best deal possible. A good starting point is the British Banking Association’s (BBA) website www.bba.org.uk.
