Given that the bankers are often ranked in the top 10 of the world’s most hated professions, the prospect of seducing your bank manager is probably not high on your bucket list.
It’s fair to say that you’ve probably never thought about doing it. But if you want your company to grow then it’s something you not only need to think about but act on.
Unfortunately, seduction, in this case, will rely almost entirely on the allure of your company’s numbers rather than your ability to deliver snappy one-liners, a bunch of hothouse flowers, or the promise of a candle-lit dinner. That’s because the average bank manager is a risk-averse creature who will demand far more from you than the average romantic date!
And it will be down to you to do the running—because if you need to fund your working capital or if you’re looking to fund investment in the business and to grab an opportunity, you’re likely to need external funding.
In other words, you need your bank manager for more than he or she needs you. That’s because access to finance will be a key determinant in your company’s growth and if you’re like the vast majority of SMEs, you’ll approach traditional banks for funding (in the form of an overdraft or loan) before looking at other funding options. So you’ve got to be at your persuasive, most charming best.
And it will take preparation—masses of it. Think weeks, even months of preparation.
That new finance might be for working capital/cash flow or capital expenditure such as investing in new machinery or property or improving existing buildings. Or you might need it to enter new markets, develop new products/services, or even to refinance the business.
Whatever your reasons for seeking external finance, if you’re going to approach a bank, you need to know the best ways to win over your bank manager. You also need to know what approach is going to trigger an immediate slap-down (an outright ‘No’) or the offer of a substantially smaller amount than you’ve requested.
Why do bank managers rebuff applications?
Banks won’t always provide you with the reasons they’ve turned down your loan or overdraft application. But here are some of the reasons they’ve offered companies in the past few years:
- The company is experiencing declining sales/profitability
- The company is over-leveraged
- The bank has changed its lending policy. A new feature of the new ‘normal’ financial environment means there’s been a reduction in the availability of longer-term debt (for loans with terms stretching over five years), according to the CBI.
- The company has insufficient security
- The company has no experience in the new product/service or market
- The bank considers the company’s business sector or trading environment too risky
- The bank is not prepared to lend the full amount
- The company has a weak balance sheet.
How to boost your chances of a ‘Yes’ response
So how do you get your risk-averse bank manager to happily rubber-stamp your loan or overdraft application?
Your bank manager is likely to demand you provide fully audited accounts, financial cash-flow projections, security information and guarantees, and full business plan details. You might also be asked to provide evidence from order books.
Companies who’ve gone through the application process in the post-recession years have noticed that it’s become a lot more stringent. They found there was a higher level of due diligence, sales and market reporting, security, and guarantees and that the process took longer than was expected. This was particularly the case when they approached banks with which they’d had no previous dealings.
Improve your credit rating
As well as having all the required paperwork in place, managing and making efforts to improve your company’s credit rating will help your chances of getting a ‘Yes’ response from your bank manager.
That means making payments on time, maintaining regular contact with creditors and banks, and ensuring you offer maximum financial transparency.
Seducing your bank manager is going to take time and lots of effort but if you’re successful, it will provide your company with the financial fuel it needs to grow and reach its full potential.
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