We often find clients asking us why they have been asked something by their bank, or being asked to provide something they have never been asked for previously.
Here we try to shed a little light on things, and give you some insider information…
Can I Have a Business Plan?
Normally asked in conjunction with a request to borrow money. The Bank ask this for numerous reasons, so please be aware of all of them before you answer.
Your Banker wants to know where your business is heading, how you are going to get there and what will get in your way. HOWEVER, they are also asking because they want to know you DO HAVE a business plan.
Please, don’t say ‘I can do a plan for you’ or ‘I have an old one’, this simply shows you don’t have a plan for your business.
The same theory applies to the Bank asking for a Profit & Loss or Cash Flow Forecast, they want to know that you know. These reports are for your benefit as well as theirs.
Why Do You Want to Borrow The Money?
This may seem a simple question to ask but it is also one of the most misunderstood. An example of this is a recent case we had, the request was ‘I need a larger overdraft as my business is growing’.
The company in question had seen an increase in customers, needed more stock to meet demand and as such was running short of cash. They thought they needed the overdraft for this reason. THEY DIDN’T.
The real reason was that their customers where increasing, but they had no new system in place to chase payment of invoices. They didn’t need an overdraft but instead needed to get their customers to pay them quicker.
The request to their Bank should have been, ‘I need a temporary increase in overdraft as my business is growing, this has caused us to purchase more stock and our debtors are increasing as a result. We have introduced a new system to chase payment and this will see debtors paying quicker and older debts be collected in. As a result we need an overdraft for 3 months until the new system takes effect and we become more profitable’.
The real reason for seeking finance isn’t always obvious, please dig underneath any request for the real reason. It is what the Bank will do, the more thorough the proposal you give the better the chances of a positive outcome, the Bank will look for holes so try not to present too many of them.
I Want Monthly Reports, or I Need To Increase Your Charges
Not uncommon for a Bank to ask, especially given the economy is tough for them also. However remember they ask for a reason. If the need to provide information is not part of your lending agreement then ask yourself why they are asking now.
Is your account up to or over its limit? Has turnover fallen? Is there another warning sign?
In this instance please don’t feel frightened to ask why. Ask the Bank to be honest and tell you why they are doing this, ask if they have concerns about you. If you feel uneasy doing this then let us do it for you, we can sit between you and your Bank and we do see both sides.
Very often the Bank will ask for something then try and wrap it up softly to you, almost as a way of trying to be nice and nasty at the same time. In this way the real message can be lost or badly communicated. This is where relationships are damaged.
If a Bank is concerned about you then be honest with yourself, do they have real reason to worry or not?
When you provide information to the Bank please ask yourself what it says about you. If the P&L will show a loss then meet with the Bank and explain it to them, say what you have done about it and why it occurred, don’t leave it to them to draw their own conclusions.
If you want our input on anything you are doing then please get in touch, our clients appreciate what we do, which says everything – 0844 682 1462