Banking Through the Credit Crunch

Hyde's Rob McLeod, former commercial relationship director with one of the Big Four UK banks, provides some timely advice to help keep your bank on side in a challenging market.

Not surprisingly at the time of writing, the turbulence in the banking industry has had an impact on the commercial debt market as well as the personal. Some banks are looking to reduce exposure generally, particularly where property is involved, and with three months LIBOR (the rate of interest at which banks borrow funds from each other) some 80 basis points ahead of base rate, they have been reluctant to quote on larger advances against base.

However, managed properly, there is no reason why you can't continue to have a good relationship with your bank and even access additional funding. To do this, my advice would be:

  1. Keep your bank fully informed. For example, ensure accurate management accounts are provided promptly. Best practice is to add a commentary against those items that differ significantly from budget. This is vital as it shows the bank that you are aware of the underlying reasons for variances.
  2. Ensure that your manager understands your business - many companies have seasonality in their cash-flow and therefore have peak borrowing requirements.
  3. Be open with the bank. It is easy to advise your manager of good news but don't be afraid to discuss problems.
  4. Manage your cash closely. Don't forget your customers/suppliers could be having cash-flow problems themselves. If you have surplus cash negotiate or find the best rates.
  5. Are your business assets financed properly? Structure is important. A cash-flow forecast will show your funding needs and whether an overdraft, invoice discounting, longer term asset finance or additional capital is needed.
  6. Ensure your business plan incorporates updated forecasts.

Despite the current market conditions there will be times when funding is required for new assets, expansion, acquisitions and changes in ownership. By maintaining a good track record your bank should be your first point of contact. Increasingly though, they will expect a business plan to accompany the request as evidence of good management.

At Hyde we have seen the benefit of working closely with our banking contacts to ensure our clients get the right terms for their businesses. We also recognise that understanding the needs of both sides is an important element to a successful relationship.

If you would like to discuss any business planning, forecasting or cash-flow issues in light of securing funding for your business, or would like to be introduced to our banking contacts, please call Rob McLeod on 020 8652 2450.

If you would like to discuss any business planning, forecasting or cash-flow issues in light of securing funding for your business, or would like to be introduced to our banking contacts, please call Rob McLeod on 020 8652 2450.

As members of the Hyde Partnership, we can offer clients joined-up fund-raising, M&A, business sale and marketing advice.

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