Managing your relationship with your lender

A good relationship with your bank ensures they understand your business and are in the best possible position to provide support when needed.

A key component of this is keeping your bank well informed of your business activities and performance to ensure they are ready to respond to any request you may have.

Avoid any tendency to tell the good side and leave the bad side unmentioned as it impacts negatively on your credibility. Discuss any downward turn in events with the bank manager as soon as it is known, not when the overdraft limit is exceeded or loan repayments are late. Remember, while the bank is providing facilities, they are effectively in partnership with your business.

Explore the headings below to find out more about how to manage your lender relationship.


Annual Review

Annual reviews are important opportunities for you to discuss business performance with your bank manager and need to be taken seriously.

Being well prepared for the annual review indicates good management practices and shows the bank you understand their requirements. Information needed for the annual review includes:

  • The past year’s financial statements, which you need to compare to your budgets. This comparison highlights any key areas that need further explanation to your bank and provides you with the opportunity to discuss measures undertaken if the variances are unfavourable.
  • Any key changes to business operations such as new customers or suppliers.
  • A current business or strategic plan for the business, if it is available.

The review results in a submission to the bank's administration, with the manager recommending continuance or withdrawal of the loan.

Although a review of this kind may appear daunting, there is nothing to worry about if your business is performing well.

If your business has not been performing well and you have not previously advised the bank then you should do so. Explain your position - what happened, when, what plans you have put in place to address the issue, the impact on the terms and conditions with the bank and when you will be able to return to more normal trading activity.

If difficulties arise

Bank managers are more likely to provide any required assistance, such as a possible renegotiation of repayments, if they are told about a deteriorating position rather than having to find out about it themselves.

You need to remember that your bank is in the business of banking, not looking for ways to sell up your assets. They may:

  • Agree to change your borrowing arrangements to make repayment easier.
  • Discuss with you, and if you wish, your accountant or advisors, your plans for improving cashflow and profits.
  • Recommend you discuss your problem with your accountant or put you in touch with independent advisors who can help you and possibly assist with your business problems.

Bank loans usually have conditions of default, with the bank being able to request payment if one or more conditions are breached. Some short-term facilities may be at call, with the bank being able to ask for repayment on demand.

Before a bank decides to call in a loan, there would normally have been discussion and/or a letter expressing its concerns. If the bank decides to cancel facilities, it must provide written advice that banking facilities have been withdrawn, in which case it will ask that all monies be repaid.

Identify longer term issues

One of the best ways to manage your business and your banking relationships is to review business operations regularly. By undertaking regular planning for the business, including cashflow forecasts and strategic business directions, you will be able to identify longer-term issues that may impact on your loan conditions early and implement strategies to halt the problems before they begin. Implementing any actions to rectify the situation early will show your banker that you are managing the business responsibly.

If you do not meet your loan commitments

A loan commitment is the lender's promise to make you a loan under the specific terms and conditions that are outlined in the loan document. Once you have signed that agreement, you are bound to abide by these terms. Although there are no standard terms and conditions, some potential repercussions of not meeting your commitments could be:

You need to remember that your bank is in the business of banking, not looking for ways to sell up your assets. They may:

  • Increase in reporting requirements to the lender.
  • Increase in fees, charges or interest rate.
  • Cancellation of the loan and repayment required.

Your loan agreement provides information on what happens if you do not meet your loan commitments.

It is recommended that you seek assistance from an advisor before signing the loan agreement so you are fully aware of what your responsibilities are and the potential consequences of not meeting your loan commitments.

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