The recent news articles surrounding RBS and how SME clients were managed following the financial crash after 2008 will come as no surprise to those with an inside awareness of what went on.
RBS operated a specialist department known as GRG – Global Restructuring Group whose job was to protect the bank. The key part here is that the interpretation of success was no longer a profitable client who was repaying their borrowing but a lower risk profile and more cash being received by the bank. The proverbial boot was now on the other foot.
GRG was not about working with the client but about protecting the bank.
Jon Pain, chief conduct and regulatory affairs officer at RBS acknowledged their shortcomings;
“RBS has been very clear that GRG’s role was to protect the bank’s position, where possible by working with distressed businesses to return them to financial health… In the aftermath of the financial crisis we did not always meet our own high standards and we let some of our SME customers down… Specifically, we could have managed the transition to GRG better and we could have better explained to customers any changes to the prices or fees we were charging.”
The fact that SMEs had been moved to one department from another is not really the issue. The issue for those SMEs impacted was that they lacked awareness of what the bank was looking to do and did not understand their agenda fully.
This is not solely an RBS issue. All the major banks will operate a department that manages high risk relationships. The term ‘high risk’ is what the bank thinks of the SME, not necessarily what the SME thinks of themselves.
For the SME, they need to be aware of when this happens and that the agenda has firmly moved. There are warning signs which many SMEs miss, these warning signs can be the first prompt to look at whether now is the time to refinance.
The Warning Signs
There are some common warning signs that you may be moving to a GRG or equivalent department, in this case it is time to review your borrowing and plan an alternative.
1 – The Decline
If you have applied for finance and been declined then ask why. Don’t take the first answer you are given but ask for a full and detailed answer. The bank need to provide this to you, however if they have said no then they are in some way concerned.
2 – The Returned Item
If you have had an item returned unpaid then the bank have drawn a line in the sand that is saying ‘no more’. As a rule if the bank have returned and item unpaid then they are unlikely to advance any additional funds to you for at least 6 months. For seasonal businesses and those with uneven cashflow this can be a real issue.
Once an item is bounced the level of perceived risk associated with your accounts has increased, be very careful where this happens and is followed by a change of manager. This could be a move to a GRG or equivalent.
3 – Change of Manager
There are two things that happen here. One, your manager has decided that you are now a higher risk and your account is being moved on. Two, a new manager has taken over your account. At this point the incoming incumbent will look at the accounts they have, decide what may be a potential problem and move that account on. The new manager won’t want any problems and will need to sign that they are happy with what they are taking over.
If your manager is leaving and you are aware in advance (big if) then ask in a clear and concise way who is taking over and exactly what their title is. Don’t take any waffle, get a clear answer.
What To Do
If your account is being moved to a specialist department then expect changes. Somewhere in the T&Cs you will have signed will be some performance clause which allows the bank to change your costs. This could be triggered by your latest accounts, a bounced item, a default or something else.
Now is not the time to hang around. You need to get a clear answer from your bank about what their aims are. Ask whether they want you to remain a client or not. It can be a difficult question to ask but it needs to be done, you do need to know.
It is far easier to refinance at this stage than leave it until it is too late. You are better off refinancing the bank debt and running your business than trying to run your business and manage your bank.
Don’t get hung up on refinancing costs. The bank will be looking to increase your borrowing costs and/or take more security from you. Act early and protect yourself.
For your options on refinancing then get in touch, we can provide these to you quickly and at no cost to you. This could be the thing that saves your business and it only takes one call.
By Dave Farmer
Lime Consultancy are a specialist commercial finance broker. Lime Consultancy specialise in working with complex property cases and commercial lending that presents challenges to other lenders.