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How to get the most out of your banking relationship

Banks are still lending to small businesses, but they are more selective over the deals they commit to. In order to maintain facilities or increase them, you need to know how to build a good relationship with your bank.

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The UK banking market has seen unprecedented issues over the past few years, which have reduced the banks' appetite for funding, especially to small businesses. Banks are still lending, but they are more selective over the deals they commit to. In order to maintain facilities or increase them, you need to know how to build a good relationship with your bank.

In this article, business consultant and Forum member Peter Black, tells you how this is best achieved by considering three interlinked areas; relationships, strategy and credibility.

Relationship

The key is ‘to have one' – you need to have a good relationship with your bank. If you treat the bank as a commodity and don't tell them anything, then when you need them most, they may not be there.

Keeping the bank ‘at arms length' is not a good idea. You need to educate the bank on your business, your strategy and your financials, so they fully understand and buy into the vision for the business.

Communication and regular dialogue is essential. Tell the bank the good and the bad news in equal measure, as and when it occurs. If you have a new contract or a good story, tell the bank about it. Many don't do this.

Both parties need to work on the relationship and it should never just be a one-way street. You should expect the same back from the bank, as you should in any professional relationship. If it does break down, don't bury your head in the sand.

Strategy

Your bank wants to see you have a coherent strategy that can be articulated to them. Continually changing the strategy or appearing to move from one to another does not give the bank confidence. The worst situation to be in is one where the bank does not even understand your strategy.

All businesses need some form of business plan and this should link directly to the strategy. It should be written for the business though, not the bank. The strategy and plan should incorporate a plan B.

You need a plan B for your funding strategy as well. Given the problems seen in the banking market and access to finance, businesses need to keep their options open and explore alternative sources.

Credibility

Credibility is the most important of the three areas and critical to your relationship with your bank. Banks hate surprises! This could be a change of direction, a sale of major assets, or financial information turning out to be considerably different to that expected. Always discuss major departures with the bank first. If they understand why, they are more likely to understand or agree with your plans, than if it happens as a fait accompli.

Make your forecasts realistic and credible. The bank will build up a history of how accurate the forecasts are that a business provides. No forecast can ever be totally accurate, but the banks see no end of forecasts showing a massive increase in profits and cash just to underpin the latest request. Where information such as management accounts has to be regularly provided to the bank, ensure they are both accurate and on time.

Again this all builds up the credibility of the business and the individuals involved. If you successfully manage these three areas, you will successfully manage your relationship with your bank too.

About the Author

Peter Black ACIB, AMCT, MBA has over 20 years of banking experience and runs Snowball Consulting, a firm helping SMEs with strategic, funding and banking matters.

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