Proposed Carnell banking changes a boon for SME borrowers

The Carnell Report into banking practices should provide small-business owners with a fairer, more equal relationship with their banks, if changes are accepted. The mooted changes would give clear timeframes on changing the terms and conditions of a banking arrangement.

Borrowers and business owners will only benefit if they obtain proper advice to help them take advantage of the proposed changes.

Here are six tips to help improve the relationship between borrower and their bank even before Carnell report becomes law:

1. Covenant reporting

Almost all loans are subject to covenants put in place by the bank to monitor a business’ performance regarding servicing a loan. These covenants may be financial (e.g. interest cover or enterprise value) or non-financial (e.g. regular financial reporting, maintaining appropriate levels of insurance).

It is important that these covenants are both maintained and reported to the bank periodically. A business should ensure that its financial reporting has regard to these covenants and that they are reported in a timely fashion and in a format that suits the bank.

2. Ensure the bank has a good understanding of your business

Present your strategic plan to your bank and educate them about your industry, your customers and suppliers, and any risks that you foresee in your market. Your bank may be able to help you and provide valuable input where they have many clients in your industry/market.

3. Provide realistic and credible financial information

Your budgets and forecasts should be reflective of what is likely to happen in your business, rather than your ambitious or “stretch” targets. Painting an overly optimistic picture of the future of your business may lead to a loss of credibility with your bank if those targets aren’t achieved. Under-promising and over-delivering will help you build trust and your relationship with your bank.

4. Arrange regular meetings with the bank

Be proactive and offer to meet with the bank on a quarterly basis. Present financial position and advise the bank how you are tracking against budget. Be honest and provide your bank with all information, both good and bad.

Explain to your bank how you propose to deal with any adverse variances or difficulties, and where possible, seek the bank’s advice as to how they might help you. By continually providing the bank with relevant and timely information, their knowledge of the business and how it is conducted will strengthen.

5. Get to know the team of bankers

Given the large number of clients that an individual relationship banker may manage, it can be difficult to have a sole point of contact within a bank. Make sure to build a relationship with a team at the bank. That way, if the primary banker is unavailable, or moves on to another part of the bank, there are still valuable contacts involved who understand the business.

6. Borrowers: Do what you say you are going to do

The key to building trust with the bank, and to ensure that the relationship is as strong as possible, is credibility. If an action has been promised, it is very important to deliver on those promises or at least provide them with an explanation of why the action has not occurred and communicate a plan to remedy the situation.

Maintain good bank relations

We believe that bank borrowers should treat the tasks involved in preparing and maintaining good bank relations as a business activity. Carnell changes or not, banks want more information from clients and this includes taking care and seeking assistance where required when applying for or reviewing funding requests.

Touch points with the bank (that may benefit from borrowers gaining specialist expertise) include:

  • Ongoing covenant and financial reporting
  • Facilitate and prepare information for presentations to banks
  • Funding mix/debt structure reviews
  • Security reviews
  • Assessment of appropriate debt levels
  • Investigating Accountant Reports

Atle Crowe-Maxwell, Director, Omniwealth Business Advisory

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