Dealing with your bank during this recession – Stephen Cockell

August 13, 2020

Dealing with your bank during this recession

 Over the last few months we have worked with companies across many sectors to successfully secure emergency funding from banks.  It has not been plain sailing.  When the schemes were announced, the banks were not prepared, and needed to mobilise their front-line teams to immediately switch to handling the mountain of applications that quickly came their way.  Added to the scale of this exercise was the urgent need to devise a credit policy that could be easily understood by staff that ensured some degree of consistency.

The simplicity of lending policies dissuaded bankers from using their discretion, and in many cases the workload ended up on the desks of the least experienced.  As if that was not enough, the history of these Government-guaranteed schemes had not been a happy one for a few banks who had been reluctant participants in earlier schemes.  Thankfully the 100%-Government guaranteed Bounce Back Loans (BBL) gave a lifeline to businesses who needed no more than £50,000.  For loans above this level we have been successful in raising the finance needed by clients, sometimes reversing a decline decision, to obtain the funding required.

We now move to the next phase of the cycle as banks come to terms with the state of their lending books, and seek to manage risk and potential losses.  I am optimistic that lessons from the last recession have been learnt by banks, but sadly history tells us that it’s only a matter of time before banks look to use under-performing businesses and risk pricing arguments to maximise their return and curtail facilities or put them on demand, and only available at the Banks’ discretion.

What can you do to improve your banking relationship and protect your business from more intrusive approaches by banks over the coming months?

  1. Managing your bank. We need to make the Bank our friend.  And you need to help your Relationship Manager (RM) support your business, by setting out a proposal that will carry their recommendation. That means understanding what makes for a successful proposition, and addressing this in a constructive and informative way.The banks are focused on a narrow set of criteria that necessitates customers demonstrating that they have the ability to repay the loan over time, with a margin of safety.
  2. Finding your sponsor. With the weakening of authority of the traditional bank manager, and more latterly the RM, the ability to achieve support outside of credit policy is challenging.

You need a senior individual inside the Bank who will champion your cause in difficult times, and that means understanding the hierarchy within the bank and building a relationship at an influential level.  Using these escalation tactics will prove hugely useful when you hit a bump in the road.

  1. Step up communication. Don’t assume that the Bank knows how your business operates.  Every interaction with the Bank is an opportunity for you to educate the Bank about the business, pointing up the reasons why it is sustainable.  Do not shy away from the risks, but explain how they are managed.

Regularity of information builds trust, and a set of results and forecasts that indicate steady progress will count more than a spectacular upturn every so often.  A good mantra is ‘no surprises’ that will prove reliability and help the RM to position your business favorably.

  1. Secure terms now. You will have heardhope for the best, but prepare for the worst.”  Review your banking facilities and prepare for a longer economic downturn than you expect with market conditions worsening, and then ask yourself – do I have sufficient finance to cope?

Your aim is to have sufficient funding with a good degree of headroom and the right length of committed facilities that give you peace of mind.  Terms will likely contain test levels of financial strength, and you should negotiate to maximise the flexibility so that you can run your business in the most effective way.

  1. Look for alternatives (just in case). The time to start an active dialogue with other lenders is now.  Over recent years there has been substantial increase in the number of new banks and new capital entering the UK market entirely focused on lending to businesses.

These new lenders are willing to lend, and provide you with an alternative to give your business the best chance of getting the finance you need.  Use an experienced advisor to get you in front of the most appropriate lenders.

Summary checklist:

  • The value of a long-term relationship with a Bank has sadly diminished over recent years.
  • Helping the banks to support your business demands a focused approach, and more proactive behaviour.
  • Timely and regular information is crucial – last minute requests tend to get the wrong answer.
  • Demonstrate that the risk has not materially changed, to ensure continuation of lending facilities on the same price and terms.
  • Maximise the funding and flexibility available to your business, and where possible extend the facility commitment.
  • Use experienced banking manpower on your side of the desk to get the best results.

About Obica Consulting – raising finance to grow your business 

Obica Consulting was founded by Steve Cockell in 2017.  During his long banking career he helped businesses of differing size and many sectors across the UK at all stages of the economic cycle.  He is now primarily focused on helping businesses grow and invest for the future.

The banking market has changed rapidly over recent years.  Steve’s intimate knowledge of this area – and the players within it – mean that he can quickly identify funding options for you, target suitable providers and help negotiate terms.

Operating with FCA authorisation ensuring the highest standards, he often works alongside ex-colleagues, so that his debt advisory practice brings the right resources to the table.  This means that you have first hand lending knowledge and senior banking manpower at your disposal to maximise the opportunity to secure the best result.

Negotiating new debt facilities, refinancing, bolt-on acquisitions, facility extensions, and covenant resets are a core skill.   Successful fund raising means more than maximising debt quantum or minimising margins.  It is about sourcing the right debt product from the right provider at the right price with the right terms.Steve has total integrity, bags of direct experience and a huge number of contacts at banks, enabling him to provide informed guidance and access the funding you need.  His personal access to senior individuals at every SME lender gives you a hotline to decision makers.

E: steve@obicaconsulting.co.uk

T: 020 8605 3701

W: www.obicaconsulting.co.uk

 

 

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