Business finance is the hot topic of the day. There are endless stories about the need to help small businesses not just recover, but sustain and expand. Back in March the Chancellor rolled out plans for a £20bn government scheme to try and boost bank lending to small and medium-sized enterprises. Turns out what the government deems small may not be all that small at all. In fact you have to be turning over £50 million just to get a look in. And then only today the FSA ruling showed “serious failings” and more dodgy dealings within high-street banking; a mis-selling of ‘specialist insurance to small business’. ‘The Yorkshire Pantry’ recently asked on twitter: how do you find an ‘ethical’ bank? How do you find a bank that understands your needs? Here are some of our experiences and tips that have helped us.
The continued reluctance for banks to lend, increases the need for small businesses to find, not just any bank that will lend to them, but the right bank; one that understands the peculiar challenges they face. One of the key factors that will help mitigate the frustration of the loan process, is picking a bank that is already pre-disposed to making small business loans. For us at WBC, finding such a bank has proven much more difficult than we would have liked. But we’ve finally found one.
We recently left the Bank of Scotland after six years. We experienced an increasing number of issues, many of which stemmed from the merger with Lloyds that were never satisfactorily resolved. Three years ago we were encouraged to switch from a traditional overdraft facility, to cash flow financing: a system where loans are offered based on the balance of your aged debtors. Sounds complicated, and it was. Basing the criteria on the number of invoices we had on our books each month, was not so helpful for a business whose sales fluctuate from month to month. WBC is a seasonal business – try explaining that to our bank!
As we predicted, cash flow financing turned out to be unsuitable for our business. That of course meant changing our bank details all over again, causing frustration for us and our customers – not to mention the cost involved in all the changes. We were promised things would get better, but they didn’t. The final straw came when someone managed to set up telephone banking fraudulently on our account, stealing £72,000!
Enough was enough and we made the decision to change banks. But where do you go? It is a minefield out there. Everyone commits their support; everyone promises a more personal service. Even in the early stages of communication it was clear that many high street banks were simply spouting more of the same hot air. HSBC seemed promising, but were too big and flat-footed. Santander promised the earth in their advertising but turned out to be the same as all the other tired incumbents. So it was with absolute delight that we happened upon a proper business bank that understands us and works the way we do…
Who? I hear you say! Well they came recommended and they have exceeded our expectations already. They have no high street presence but they have around 150 local offices that have small dedicated teams who actually make decisions without reference to some mythical lending committee. They actually want to know who you are and understand your business. Look them up online and you will be surprised to see they are one of the strongest most stable banks in Europe. They work on what they call the “church spire” principle. It’s the metaphorical principle that believes you need to be able to see your customers from the church spire, meaning they need to be local businesses. Music to our ears, as I’m sure it is to yours. A bank that champions and celebrates the small and perfectly formed business? That’s a new one. But sure enough, everything Handelsbanken has done so far, has impressed us and they are a breath of fresh air.
Great for us! but once again, apologies to you for yet another change of bank details. Hopefully this will be the last change for a long time – thanks for bearing with us. If your business is having a tricky time finding the right banking solution for your business here are a few pointers that can help the decision process:
1. Talk to other local businesses on your high street before settling with a bank. What are their experiences and war stories?
2. Nowadays the old style bank manager does not exist, but it is still vital you form a relationship with someone at the bank who takes responsibility for your account and has some decision-making powers.
3. Never show the bank your best-case projections. It is much better to over deliver than under deliver.
4. Even if you DON’T need to borrow from your bank, apply for a small loan or overdraft and prove that you do what you say you will do. A history of making repayments on time will be vital if you ever need to raise larger amounts of money.
5. If you haven’t already, look into membership of local trade associations in your area. Many have free and vastly under-used financial advisory services specifically for members.