Shift happens....

Not sure who put this together and its got nothing to do with banks but it sure gets you thinking....

10 signs of a bad bank relationship

1. You have been with your bank for 100 years but annual rate reviews only ever seem to go up, not down, and they hold so much security that if you went under they’d even take possession of your Mother-in-law….

2. Your bank manager is the fifth this year and you suspect that as they actually get younger every time, by the end of the year its possible your manager then won’t be eligible for a drivers license yet….

3. Your bank has taken 6 months to approve a temporary overdraft increase that you needed 2 months ago but with the condition attached that you pledge the total earnings of your first born child….

4. You ask your bank to release your personal guarantee and they disappear under the desk and return with a fake moustache and glasses and insist that they only speak French….

5. You are continually having to justify your existence, reporting monthly on number of toilet visits and requesting permission to spend $2 on buying your top client a 50c ice cream at McDonalds…

6. You tell the bank that you need more working capital and you come away with a lower loan limit, not more….

7. You have the opportunity to invest in a magnificent growth opportunity but when you check your bank account the bank has decided to use your savings to pay down your loan, and the they ain’t giving it back….

8. Your bank refuses to allow you to hedge your foreign currency exposure and then slaps you with a large stick when you lose money because the US$ went up and book FX losses….

9. You need to employ a finance manager simply to be able to meet the bank reporting requirements…

10. The only time you see you bank manager is at the football, when they are there clearly hosting a table of other customers ….

If any of these resonate with you, why not have a look at our Bank Management Services - we might be able to help

5 things businesses must do to improve bank relationships

Nick Gardner exposes an underbelly of bank disinterest in small business lending in his article published on Sunday.

Reading through it he shines quite an inflammatory torch on the banks with quotes from various folks citing catastrophic business consequence. Whilst not all businesses would be suffering quite as portrayed, there are probably thousands of businesses out there that are. From a shareholder's perspective, banks are not charities and they need to manage the very finite capital resources that they have to ensure maximum return. However this doesn't help businesses suffering under the bank disinterest shadow.

I have to also say that my bum twitches at the thought that new global banking parameters handed down in Basel will likely further turn banks away from small business as the relative differential between the capital required for business lending and mortgages increases again. However banks have got much better in recent times at justifying (at least to themselves) price increases to compensate for this which probably just means that those businesses that need to borrow, will be able to, however they need to expect to pay considerably more!

here are some things that businesses need to consider when managing their bank relationship going forward.....

1) Reduce your risk perception

Businesses need to become much smarter at managing the risk messages that they are conveying to the bank. Obviously, the lower risk you are, the lower your pricing will be and the more attractive you will be to banks.

This is about managing your trading accounts, paying your loans on time, operating within your covenants and budgeting conservatively (for the bank).

Pearl Finance have a Risk Grade Assessment service that can help you to understand what you are doing wrong.

2) Give comfort about the future, justified by the past

The number 1 reason why a bank will foreclose on a business is because they have lost confidence in the business' ability to trade its way out of trouble. If you want to have an unsupportive bank, then do yourself a favour and keep them in the dark about your plans for greatness.

If you don't have plans, then you need to ask yourself "would I invest in my own business" and then detail on paper why. But remember that banks are cynical bastards. If your enthusiasm is based on pipe dreams and ideal world scenarios then you are portraying yourself as a gambler, not a business person. Leave the low probability get rich moments to your horse racing pursuits! Your plans need to be 85% certain of coming off (ie sales contracts in place or evidence that you have done it multiple times before) otherwise you are kidding yourself.

Check out the forecasting checklist attached (you need to sign in but there is not cost and you won't be hassled by ongoing communications unless you elect to be)

3) Tell your bank what you need and why

Always spell out for your bank what you want from them. The average banker is taught to be an order taker, ie you ask for something and then I'll choose whether the answer is yes or no. If you don't put propositions to them in this black and white format, they will find it difficult to respond.

4) Identify the risks in your business for them

If you tell the bank what is wrong with your business, you reduce the need for them to think about this as hard themselves. Having aired your dirty laundry however, you then need to take the time to explain to the banker why they shouldn't be worried about the things identified. This does 2 things - it shows that you are a smart business person employing sensible risk management practices in your business (remember they are in the risk management business too so they will love this!) and bottom line - you are managing the risks inside your business, something most businesses never take the time to do!

5) Have a Bank trusted intermediary on your team

Don't underestimate the value that a bank, who is doubtful about you and your business, will place on you then appointing someone that they trust to advise your business. All of a sudden, the bank believes that they are getting the full picture and they can stop guessing what is really going on behind closed doors. The bank can also gain confidence that the business is working with the bank's interests in mind - they love this.

Who are the intermediaries? I'm not sure that your Accountant is enough. They might be bound by professional codes of conduct, but they aren't bankers and, though there are plenty of exceptions to this, they don't necessarily know what a bank wants and thinks.

Insolvency Accountants have very close relationships with the banks (banks are their best source of new business). However, again as a generalisation, insolvency Accountants have a vested interest in you falling over as they are then the most likely candidate to take you over. Also, they are not always good at trading businesses as they cost too much to spend the time needed. Their forte is selling businesses and business bits. Unless this is your most likely resolution then you might want to think twice.

Experienced bankers are your best bet in my heavily biased opinion! We bankers understand the concerns of the bank. We know the issues that will be concerning them and we know what the business needs to look like to alleviate concern. We are not widget experts however - ie we can help you plan what needs to be done to get you out of the pickle, but you will be left to drive this. This keeps the costs down.

Happy to chat this through with you if you are having some issues. Simply leave a comment below of alternatively contact me at Pearl Financial Services, leave some basic details and I'll give you a call.....

Banks currently open for business (Sept 2010)....

Well I have to say that I am noticing a slight change of attitude with the banks. As talked about in Michael Pascoe's article last month we are starting to see some signs of hunger in the banks re actually writing business loans, rather than just pretending to and telling everyone you are, like they have been!

In the last month I've had some good reaction from ANZ to a couple of my deals. Both the deals were good opportunities but both had some slight historical trickiness that would have been used as a good reason not to touch them a few months ago. Followers of this article series will know that I have always spruiked ANZ as they have been most receptive of Pearl clients throughout the GFC, and they continue to do well. Further to this I now have them agreeing to take my submissions at face value for the purposes of issuing indicative term sheets which is great as this will save some time.

NAB are the other bank that I am hanging out with a bit at present. They don't pay brokerage which is a pest as it means that clients that we put there need to administer our brokerage themselves which is a pest for everyone, but they are happy to do it as, to be moving banks, means that we have got them a deal that makes sense to more for. NAB are very keen to build capability internally to enable Business Bankers to have the skills to be able to provide financial performance feedback and guidance to business clients. Whilst this might not be ever client's desire it is a great initiative as it shows that NAB are trying to differentiate their service by having bankers that understand business better.

Both ANZ and NAB are not cheap, but at least they are doing business lending so better to have an expensive loan to take advantage of growth opportunities than not have aloan at all is what I'm telling people.

The rest of the lending that I'm doing at the moment for clients wanting new funding lines is going to non financial institutions, namely Bibby Financial Group, Banksia Financial Group and Octet, all of whom are working really hard to write new business, and all of whom have good products that clients generally like.

In the last month I have also been introduced to Liberty Financial for Debtor Finance and I have to say that the one interaction I had was very impressive. They are very hungry for new business and this shows itself in the speed with which they attend to new applications. To me I am less worried about what the lender charges and more interested in how fast they make a decision, be it positive or negative. Liberty were super fast and I plan to through a few new deals their way this month as a consequence.

The non financial institutions continue to impress in their speed of decisioning relative to the banks and where possible I am trying to avoid the banks for this reason!

Happy banking,

What would be harder - 2 banks or 2 husbands?

Having a bank relationship has remarkable similarities to being married. Like marriage, your bank relationship starts with some courting - business owners might have even played the field a little! But in the end a business and the bank will fall in love and decide to "settle down and start a family".

Like a marriage, your bank relationship needs plenty of ongoing maintenance work. It needs constant communication on what each is thinking and doing, the odd piece of jewelery, a nice dinner out, and perhaps the occasional trip to the footy. It also often relies on compromise to ensure harmonious continuance.

Now what would happen in your marriage at home if you were to introduce a second husband or wife into the mix?

Even if your wife allowed the new partnership to commence (mine wouldn't, though to be fair I haven't ever asked) then I would imagine that keeping the new 3 way partnership afloat would be extremely difficult, not to mention expensive to set up (2 weddings instead of one).

Each wife would be continually looking over your shoulder at the other wondering if they are missing out on something. Each would be wanting you to spend time with them, nurturing and caring for them. They'd each expect a degree of equality when it came to their share of assets and income and no doubt each would require their time in the bedroom with you.....sounds exhausting to me!

So why would you consider it in the first place?

There are a few drivers that make the concept look attractive and need consideration:

The key positive is the introduction of competition. Theoretically you would expect each of your wives to always be contesting to win your sole attention and to oust the other from the awkward trio. In banking parlance you'd translate this as cheaper fees and charges, but also better overall relationship experience. However I expect that overtime, as the wives became more complacent what you'd find the competition element subsiding, or even worse, the wives might start to conspire against you and collude and these advantages might start to dwindle.

This would be especially true if, tired from attending to everyone's needs constantly, you start to let slide on your maintenance work for both of them!

Another possible advantage in the multiple wife/bank strategy is that if a wife leaves you, at least you still have one partner to keep you company and to support your needs. The GFC has taught us that banks pulling out of markets, changing risk appetite and even as seen OS going bust, are real risks for businesses.

The negatives are fairly obvious:
1) You have to deal with 2 spouses - don't underestimate how annoying this will be when we're talking about having 2 banks!
2) No one wife has a view of the whole picture. This will cause difficulty if you need a special favour as you might find yourself in a position where neither wife has sufficient comfort to help, worrying that the extra effort might put them at a disadvantage next to the other wife. Just to clarify from a bank perspective I am thinking of instances where you need emergency funding increases and neither bank is willing to step beyond their own limits for fear of taking on a disproportionate share of the risk.
3) There is high chance that one wife will become jealous of what the other wife has, and start to become hard work. We have a client that is experiencing this now (with their multiple banks that is). One bank has more than enough security and the other is a bit skinny. The skinny one is being a pest now as credit don't want to carry disproportionate probability of loss given default if the business falls over (which it is not showing any signs of doing - the bank is just being paranoid!)

Now its worth mentioning that large corporates have multiple banks and perhaps medium sized corporates would love to look and smell like these big boys, but I think we need to think of them as exotic wealthy sultans with their Harems. If you can afford a team who will manage the wives for you on a full time basis, showering them in gifts and ensuring that there is plenty of wealth to go around, then perhaps there is an argument to say that the multi bank thing might just work. If you can't afford this level of support then you might just collapse of exhaustion trying.

I, for one, have enough difficulty keeping one wife happy, and I am sure that this would translate to my bank relationship too so I would think carefully before rushing in to introduce a second bank. It might just be more trouble than its worth!

CBA tipped to lift mortgage rates

Following on from my article Behind the spin, NAB business performance is as bad as the rest in August, the Age reports that JPMorgan banking analyst Scott Manning is seeing signs in the recent CBA annual report presentation of an inclination to lift rates rather than go the hard yards and simply combat the declining loan book by lending more.

Would I do the same in their shoes - probably.....no, most definitely, but its not necessarily doing the economy any good and my guess is that if government were watching this, they might feel compelled to step in.

CBA tipped to lift mortgage rates: 

Are your commercial loans appropriate for your business?

Banks are mysterious beasts!  They are always nice to you when times are good, are seldom easy to deal with when times are tough, and you never really know where you stand.  It is this mystery that challenges business to ever really trust they bank.

When I see a new business, I am often provided the opportunity to hear the "real story".  This is the story of what has been going on that the business hasn't told their bank.  Good businesses don't tell the bank the whole story because they don't think the bank need know it as there is nothing to worry about it.  Businesses with trading issues will never tell the bank the whole story because they are fearful of what the bank will do with the information.

The reality is though, that businesses that aren't sharing the whole story with the bank - their funding partner - aren't entitled to complain about banks not caring about their business as they aren't giving the bank a fair shot at providing a deep and meaningful relationship.

Pearl Finance offers a Bank Check service that helps businesses understand the sort of information that should be shared with the bank and why.  The service is quick and inexpensive, and it will also identify if the rates they are paying and the amount of security they are providing for commercial loans is appropriate