General advice on bank borrowing for business purposes

Shop Around : If you need to alter your bank lending, do not restrict yourself to staying with your current bank. Loyalty rarely wins favours with banks, in fact, like with mortgages for houses, the best deals are usually reserved for new customers or those they feel they will lose otherwise.

1. Do you have a regular competitive review procedure for those supplying your business with goods and services?
2. Do you regularly hold a competitive review for your supplier of banking services?

Most businesses will say yes to the first question and no to the second. Research continues to show the main reason for changing bank is after the sitting incumbent makes such a major mess of things the business feel they have no option. Often an inertia factor is lack of confidence, 'who would want our business'. The answer is that you might be surprised. Another reason often quoted for not shopping around is that all banks are the same, charge the same etc. The answer to this is 'only on the surface'. If you want to borrow from a bank shop around and consider these factors:

1. Negotiate! Whilst you may be told that the tariff is set centrally business tariffs are negotiable. Negotiating is also a test of how much they want your business.
2. Consider whether you need a High Street bank or whether another bank may be better. Precisely because they don't have a High Street presence some of these banks will offer better terms and a better service. If you are a business that does not have a lot of cash and small cheque transactions this may be especially relevant. e.g. at the time of writing the bank that had won 'Best Business Bank' 3 out of the last 4 years was not a high street bank. Also the only bank to offer guaranteed no charges plus a significant level of interest on a current account was a non High Street bank. Whichever bank you settle with make sure they provide the tarrif for your account in writing before you commit.
3. Some banks dip in and out of sectors more than others. Different banks central control over business lending varies. Some focus on the balance sheets of the individual companies more and some focus on the sector business more. Whilst the bank that might be more sector specific can be advantageous at one moment in time they are also the bank that might be the biggest problem at another. It is something you should question both the bank and any contacts in trade organisations or friends in a similar business sector about.
4. Guaranteed Overdrafts. The flexibility of an overdraft can be nice from a customer viewpoint. The flexibility of use to a customer is also traditionally mirrored by the flexibility of the bank to withdraw the overdraft at any time. Such withdrawal can be a serious, even a devastating problem for a business. Some banks will guarantee that they will continue to offer an overdraft for a fixed period of time. Find out if this is something the banks you are negotiating with will do and what that guaranteed time period is. Make sure this is in writing : an understanding with the manager is fine BUT there is always the risk that the manager might change tomorrow.
5. Linkage of security to specific borrowing. A messy problem we frequently encounter is after a business has reduced its bank borrowing and wants some of the security released and the bank does not want to do so. This may be a reduction / removal of personal guarantees or perhaps of floating charges. Get the relationship sorted between security and specific borrowing arrangements at the time you make the deal.

No-win no-fee bank charge reviews.

This may apply if you have operated an overdraft for 3 or more years. You might expect a bank to be accurate in the way it charges its customers. If you do expect this then you would be wrong! Banks do make mistakes, and strangely enough the majority are in the favour of the bank. If you regularly make use of an overdraft facility with average use of £30,000+ talk to us about a review of the bank charges. This costs you nothing! it is done on a no-win no-fee basis.

How can we afford to do this? Precisely because we can recover charges in the majority of cases! This will not upset your relationship and future borrowing either! Usually banks are keen to make amends, and realise the business is more financially aware after a bank charge review has been successful. This tends to make them more flexible in future negotiation not less.

The Legal Bit: A page such as this has to be general in its nature. Its purpose is to be informative and should not be the basis to enter into any business arrangement. You should NOT enter into agreements without careful consideration. Business borrowing is a matter that you are better to seek professional advice before entering into. As such, no warranty or representation is given. We cannot accept any liability, direct or consequential loss from the use or reliance on this information.

If you want professional advice or just to find out more about bank borrowing, finding a different bank or other financial issues give us a phone or complete the web form. Press the 'contact' button at the foot of this page.

Bank borrowing is only one form of business finance. To visit (or return) to the page on Business Investment and finance click here