Small-business owners should think of their bank as a partner, not an adversary, and actively take steps to build a relationship with them.
It’s tempting, particularly in the current environment, for SMEs to view their banks as being out to get them, but often this is not a useful approach. Indeed, the key message to take from the recent Royal Commission hearing into loans to small and medium enterprises is that SMEs are reliant on the finance made available to them by the banks, and many would be unable to grow without this finance.
It is therefore vital for SMEs to work with their bank or funding partner in a professional and sensible manner, to ensure they achieve the best results. They should ensure they are aware of what the banks are looking for, and then take steps to provide it on a regular basis.
It is important that business owners understand all their obligations and requirements, and are able to provide up-to-date and detailed information on the business and its financial position. For instance, show you are in control of the business by creating regular management reports. Most of our clients are on a cloud based accounting systems which enables them to access up to date figures and provide banks with information in a timely manner.
Another key part is being able to bring your business and credit story together at any time, showing that the numbers being produced are a result of good business planning and ongoing business management. At the same time, it’s worth regularly reviewing financing arrangements to ensure they are still right for the business.
Any loans or financing arrangements shouldn’t be treated as “set and forget” – it’s up to business owners to make sure they are aware of any changes or new offers that might get them a better deal. We recommend reviewing arrangements at least every three years, as many things can change in that time – such as the business’s circumstances, or the credit markets and the rates being offered by the banks.
For example, if you have a loan that is secured against a residential property, particularly interest only loans, it is likely a better deal can be arranged in the current economic environment, and lower interest rates achieved. If you have a business loan and your trading performance has improved over past three years, a better deal could potentially be negotiated with the bank.
As noted in recent events, the banks also do not always get it right, which is why having someone independent in your corner can add real value. The key point to remember in any banking relationship is that the onus is on the business to stay on top of their requirements, manage the covenants – and keep any eye out for a better deal!
James Macfarlane, Debt Advisory Director, HLB Mann Judd
