Maintaining a good businesses relationship with a financial institution (such as a bank, credit card company, etc) has always been important. This is becoming more prevalent as many lenders are consolidating, borrowing becomes harder and options become scarcer.
In the past, we may have regarded this relationship as a partnership, where each party stood to gain something – a classic win/win situation. Sadly, as the credit crunch continues, this is becoming less so as banks are tightening their belts. But for many business owners, especially ones who are feeling the pinch, or seek funds to help grow their businesses, this relationship is important. It needs to be fostered. If your bank has lent you money for your business, it’s important you create the right environment so they continue to lend to you.
Lenders hate surprises. Keep communicating with your bank even if you are irritated by its approach. Ensure that your correspondence and communication remains cordial – remember that honey and sugar catches more flies than salt and vinegar. Inform them of any major plans you may have for the future and don’t be afraid to ask your bank manager for advice and help.
Most banks want to be confident that:
* You will be able to meet loan repayments from your business’ operating activities (or net profit before interest and tax)
* You have adequate security – banks are continuing to decrease their loan to value ratios (LVRs) regularly and will regularly adjust asset values, which continue to decrease. Banks will rarely value your assets at book value or open market value and will take a very defensive stance by valuing them at “fire sale” values.
* Your business will remain solvent and continue to trade, profitably. Build some “margin” into your financial projections as most lenders will adjust your financial assumptions as a precaution
It’s important that your bank manager knows your business. Do you rely on sales at peak times of the year? Do you understand the market you’re in? Bank managers are likely to have dozens of lenders to look after and can’t be expected to understand each customer’s markets thoroughly. But look to ensure that they know yours, as you’ll find it much easier when you need their help.
Remember that maintaining a healthy business relationship with your bank may be the difference between success and failure. They are a business too – don’t give them a reason to seek an alternative for your custom.