7 Ways to Get the Best from Your Bank

When considering whether to provide finance to a customer, banks generally look at the following 7 areas. As a bank customer, it is important to be aware of these issues and to be well-prepared when dealing with your bank.

1. Customers

Are the individuals known to the bank?
How long have they been in business?
Do they know their trade?
What past records do they have in the business?
What past record do they have with the bank?

2. Amount

Is enough finance being requested? This is crucial.
How is the finance to be used?
Have estimates for expenditure been obtained?
What is the position, if applicable, relating to planning regulations?
Cash flow forecasts need to show the effect of provision of funds. Will the increased finance result in increased business? If so, is a further increase in working capital necessary?

3. Repayment

Capital goods can normally be geared to the life of the asset – buildings up to 20 years.
Banks normally prefer to lend on term loan with the repayments to include interest and capital.
A short moratorium (non payment of capital) can sometimes be arranged.
Payments can be geared to seasonal trading where appropriate.

4. Security

The bank will seek to ensure that the business is viable on its own profitability and that the security is being used as a backup.

Acceptable security – freehold property, shares, life policies, bonds and guarantees – these are normally regarded by the banks as tangible security.
Book debts – factoring – can be undertaken through a specialist factoring organisation.
Intangible – a floating charge on all other assets – is only applicable to limited companies.

5. Remuneration of the bank

Banks are prepared under certain circumstances to make special concessions on interest rates and commitment fees. Bank managers may make an initial charge for lending finance and also charge a market rate over the bank’s minimum lending rate.

6. General

We recommend that you tell your bank manager what is required and ensure that a proper proposition is put to him for his consideration. Banks are in business and make a very comfortable profit from lending money and it is important when requesting finance from your bank manager that you take a positive attitude.

Take particular care in respect of the following:

Make sure that you have requested adequate finance from your bank to support the proposition.
In writing, demonstrate to your bank manager that the finance is required and that your request is set at the correct level.
Your bank manager will expect to see up-to-date accounts. Please ensure that your accountant has adequate time to do the work properly.
Where applicable, ensure that profit forecasts are available.
Make sure that cash flow projections are available to demonstrate to the bank your ability to repay the loan and interest.
Your bank will often take a more positive view of your request for finance where it is aware that it will be receiving regular information on your business trading.

7. DOs And DON’Ts

Do talk to your bank regularly and keep it informed.
When the time comes that you do need help, the bank will be much more sympathetic if it knows you well.
Do understand the range of services your bank offers.
Do control your working capital. If you do, you can manage the business on less cash.
Do monitor cash – both current and future.
Do ensure you have good internal information systems.
Good systems and information equals good control equals profitability.
Do understand where you’re going. You need a strategy and a plan of how to achieve it.
Do use your plans and financial information as a central management tool to monitor your progress.
Don’t economise on having a competent accounts team with good computer systems to give you financial control.