Many SME owners go about their day-to-day business without considering the important role a relationship with their bank plays in the success of their business. Here’s what business owners need to know to be on their bank’s good side.
A strong relationship with your bank will play a huge role in enhancing your business’ prospects for surviving and thriving. And the key to forming this relationship is centred around communication, honesty and transparency.
However, many business owners are discovering that their lender only manages their business clients by exception: that is, when the customer approaches their lender for changes or an increase in borrowings, or the lender contacts the customer when their accounts exceed borrowing limits or repayments are missed.
An experienced commercial finance broker can be integral in enhancing a fruitful relationship with a lender by understanding the information requirements of the lender, packaging and presenting loan submissions and negotiating pricing, loan terms and conditions.
A broker can assist business owners in reviewing their current banking arrangements, seeking new and increased finance and ensuring they have the complete banking service package that meets the needs of the business.
Here’s four key points to consider when selecting a finance provider:
1. Choose wisely
Like the start of any relationship, it’s important to choose your banking partner carefully. Your bank will play an important role in the growth and success of your business.
A finance broker can assist in determining the best finance provider for your needs, and then work with you and the lender in identifying suitable lending and banking requirements during the peaks and troughs of your business cycle.
2. Think about the future
It’s vital to keep your bank in the know about any changes to your business plan. This will ensure your finance broker and banker can effectively guide you in making the best decisions to ensure your business’ financial health over the long term.
Changes to product or service offerings, plans you’ve made to hand over the business to the next generation and business exit strategies are all long-term decisions that will impact your business, and should be shared with your finance provider as they happen.
3. Open communication and keep in touch
The number one rule for any relationship is open communication, and it’s no different with your bank relationship. It’s important to take them along for the ride with your business and develop a relationship that allows for the continual sharing of information.
Many SMEs fall into the trap of not sharing vital information with their finance providers for fear of it being viewed negatively. Building trust at the start of a relationship is vital in helping you ride the ups and downs.
You need to share key information such as:
- Financial statements and business plans. The better the bank knows you and your business, the better off the relationship and results will be.
- Strengths and weaknesses. Does your business have a strong reputation within the industry? How is your cash flow? Are your marketing strategies successful?
- Current and upcoming risks. Are there any special concerns and imminent changes to your industry? Are new competitors entering the market?
4. Don’t be afraid of your flaws
Just like people, businesses have flaws too. Many businesses, particularly those that may be experiencing difficulty, feel that staying close to their finance broker and bank will only highlight any potential flaws. However, this approach runs the risk that decisions will be made purely on numbers rather than an understanding of your business’ situation.
If you wait until the last minute, or after the damage is done, there may be fewer options available to help make the situation better.
Malcolm Anderson is the finance manager at William Buck.