There are a number of set factors that raise the concerns of every business bank. These concerns lead to higher interest rates for you and even less access to funding and other facilities.
The thing is that a bank will never tell you what the warning signs are. There is an assumption that the customer should know when they have ‘done wrong’, but life is just not that simple.
Here we give you a list of common warning signs that raise a banks concerns.
This means, if you use the overdraft, does the balance go into credit and go overdrawn. The ‘swing’ is how much it goes into credit and how much it goes overdrawn. A big swing is quite good, no swing (i.e. always overdrawn) is a bank warning sign.
A lot of businesses think that having the odd returned cheque is no big issue. The problem is that it is highly unlikely a bank will lend you anything if there has been so much as one bounced item in 12 months.
Most bank risk systems are based on a month by month comparison. This means that there is little allowance for seasonality. During your low period you will be setting off warning signs so don’t ask for borrowing during this period. Always ask for finance during your high period then get it agreed for a 12 month term, therefore getting the finance you need well ahead of when you need it.
What does this mean? If your account goes over it’s overdraft limit then you pay in the same day to bring it back within the limit, that is a daylight overdraft. In other words it doesn’t stay that way overnight.
Accounts that exceed their limit on a daily basis, then are corrected may be OK in your opinion but the bank will treat it as a warning sign.
35 Day Rule
If a business has not paid anything in within 35 days then the bank will start asking why, they will also start to limit funding until they know more.
For consultancy and project firms then no credits for 35 days could be the norm. It would be worth bearing the 35 day rule in mind as it could come back to bite you through no fault of your own.
Bank Warning Sign Summary
The above is simply a few pointers and a little bit of inside knowledge. Please add your comments below or contact us on 01293 541333 with any feedback.
By Dave Farmer