RATIONALE

Businessmen and banks simply do not see the world in the same light. Neither side really understands the other, though they think they do… and relationships can unravel quickly when the going starts to get tough.

The first thing a business needs to understand is how the bank views the strength of the credit, how strong they perceive the collateral cover to be and where they pigeonhole the business for analysis and reporting purposes. Next is an understanding of how collateral cover changes with trading patterns and the development of a coherent strategy to deal with the bank.

It is essential to prepared, and if you are starting to head into some difficulties which will mean that you will break covenants or run short of collateral cover, then it is much better to have that conversation with the bank on your terms rather than theirs. Whenever you start the conversation, your banker will start to see the effect that a problem loan will have on his reputation and career (that’s why bankers hate surprises). It is important to be proactive because if you wait until you have already breached, then the bank’s attitude will be very different.

This means communicating proactively and in writing, and ensuring that no reliance is placed on personal relationships. Your contact at the bank can be moved with less than two weeks notice and you can find, quite suddenly, that you have to educate a new contact who is taking on a whole new portfolio (perhaps with some problem loans) and may not understand your business. There is no guarantee (except yours for the business loan) that he will embrace your business, and the bank’s file needs to "sell" your business to whoever reads it.

Being prepared is more complex than it may at first appear, and this is simply too specialized and important to leave to your financial people. Edge brings a wealth of highly relevant experience to the table, and the Banking Edge has been specifically designed to map out a strategy for the company to follow without involving any significant time commitment from the CEO.