“Reasonable” is a relative term: whatever you are paying on banking facilities would be cheap compared to the rates being charged by 3rd or 4th tier non-bank financiers…. or loan sharks.
Risk has been repriced not just domestically but globally. Retaining your facilities at their current levels and possibly obtaining additional funding needed to meet your business requirements should be of greater concern than a few percentage points increase in rates (assuming of course that your business isn’t overleveraged).
In the current bare landscape, the banks are a key source of (relatively) cost effective debt financing for most SMEs, supplemented by debtor and/or equipment finance from specialist providers as necessary.
Refinancing isn’t quite so easy these days and there’s no guarantee that the new relationship will be significantly better. Building a constructive partnership with your existing bank is the better way to go in this climate.
Banking relationships, like all relationships, are 2-way streets. However, an SMB (Small & Medium-sized Business) does have to be the more pro-active partner in building the relationship with its bank.
Depending on the size of your business and the quantum of your facilities, your bank manager will be dealing with anywhere from 40 to 150+ accounts. It’s unrealistic to expect your manager to spend time to really understand your business- except when your account is considered to be “a problem credit” at which point you will be subject to very close scrutiny…and it won’t be by your usual manager.
4 Tips for Building a Strong Banking Relationship
- Provide business context as part of your financial reporting. Do not just send in a set of financial statements. Regardless of whether it is monthly, quarterly or annual reporting, you should provide some commentary about the business in relation to the numbers, particularly if there are unusual/abnormal items or adverse movements eg decrease in profitability.
- Annual reviews should be handled like a new application for finance. You should provide a brief business plan as well as budgets/forecasts with clearly stated assumptions. Check out my FREE training video on how to prepare a successful financing proposal.
- Meet all your obligations. This includes non-bank obligations eg payments to the ATO, and non-financial obligations eg providing reporting in a timely manner, adhering to covenants etc. The strongest recommendation in a credit submission goes along the lines of “(business owner) has always met his/her obligations as and when they fall due” or “(business owner) would not undertake any obligations that he/she could not fulfill”.
- No surprises. Banks hate surprises. Think about it: how would you like it if one of your debtors suddenly turned up and said, “I can’t pay you for a while. I’m having some difficulties.”
If you anticipate problems in meeting a loan repayment or if there is a possibility that you might go over your overdraft limit even if only for a few days, talk to your bank before it happens.
You should be able to anticipate these issues if you have sound cashflow management systems in place (which you should – and if you don’t, it’s time to get them in place). Obviously, you need to have developed action plans to rectify the issues by the time you meet with your banker.
In-Context Finance has successfully assisted businesses in achieving what they require from their existing bankers, even in difficult turnaround situations. My approach to finance can make a difference.
Contact me to find out how I can help.