Working with your bank in troubled times
We have now endured over three years of difficult banking: raising new funding is still becoming more challenging and banks remain very wary of the risk of future defaults. Whilst the government is encouraging lending, it is imperative that the banks maintain a proper and strong balance sheet and only lend to people and businesses who have demonstrated ability to repay the loans on time and in full. We certainly do not wish to see another return of risky lending. That said, as with all things, there has been a swing in the opposite direction with obtaining and maintaining finance with banks becoming more and more problematic.
We act for numerous banks and we can assure you that they are extremely keen to lend money to viable businesses and to help them thrive and grow – although it may not appear so at the time! If you have current funding in place then there are some several simple steps that you can take to ensure that this is maintained – particularly if you have the benefit of a loan which is linked to the base rate.
Simple steps to follow for smoother banking:
- Be very clear as to what type of loan agreement you have signed up to and its terms: this may seem obvious but be aware of its renewal date. Start negotiating and thinking about whether you wish to remain with your bank at an earlier stage rather than leaving it until the last minute.
- Be aware of the financial information you are meant to provide to the bank and make sure that you understand fully the timescales involved. Failure to deliver information on time will cause alarm bells to ring with the bank and is an easy own goal from your own point of view.
- If you foresee a problem or challenge within your business which may cause you some financial difficulty, whether it is for a short-term period or longer, discuss this with your bank at a very early stage. They can then assess the best way to assist you or recast the loan in order to ensure that the best outcome is achieved. You may be concerned about doing this but failure to communicate with your bank openly and honestly at an early stage can then result in them taking more drastic measures than perhaps they would have done if they had been told early on.
- At all costs avoid getting irate with your contact at the bank. They are sitting within an institution which has been tasked with ensuring that all lending is fit and proper, and accordingly must comply with a vast range of new regulations.
- Make sure you read all your documentation in full. If anything is not clear or needs further explanation have a word with a finance lawyer.
- If you can sense that whatever is happening with your business may mean a drastic change then it is a good idea to provide your own plan of action to present to the bank or to alternative lenders and at an early stage.
- Think about alternative security that you may be able to offer to the bank. This might comprise guarantees or security over other property. The Banks take a dim view of directors who are unwilling to pledge their own assets for their company borrowings when asking at the same time for the bank to do exactly this.
- If, ultimately, you see that you have to change your lending to another bank then it is always good to have been speaking to a variety of banks in advance to sound out whether your proposition is viable. Many lawyers and accountants will have very good contacts with several of the banks and can indicate whether any one particular bank may be interested in the proposition.
Currently there are many new lenders coming into the market; however this will not see a surge in new lending. But, if you have a good and viable business, there should be no reason why you will not be able to obtain alternative funding.
So in summary the key is communication – it is not a good thing to sit and hope that the problem will go away and it really it is much better to go and speak with the banks early on.
Contact Susan Younger in our banking team to discuss this further.
