We are often hear the statement “we have a great relationship with our bank”, but have you really tested that relationship when things are bad?
The relationship with your bank is only as good as the situation at hand and at times this will mean that there is a reliance upon an unsuitable partner, or one that will only support you when times are good. Looking at the recent Royal Commission into Banking there has been a common thread that borrowers assumed that the bank had their backs, this has not always been the case.
So why two banks?
We have found that have more than one banking relationship gives you a level of control in dealing with your financial affairs and assures that you can control some aspects of your lending arrangement. In early discussions we cover cross collateralisation and the risk when you have one lending relationship is that there is will be a surreptitious cross collateralisation arrangement or your lender will require one if times get bad.
Where you have multiple borrowing arrangements you will have some flexibility over the use of your assets, whether this be being able to dispose of assets and not being required to top up unrelated lending facilities or being able to pledge other assets to different borrowing facilities. This can be especially the case if you are planning to use debtor finance or short term cash flow lending that may not be suitable for your primary lending.
For any business that is looking to control it’s financial position, the control of the lending starts with the relationship with the financiers and understanding their motivations. The banks are looking to minimise their risk, and taking as much security as possible is the mechanism for doing this.
But my bank has offered me a lower rate?
In dealing with our clients we hear stories of where the banks have offered a complete banking package at a lower rate than would be available against a standalone facility. Whilst the rate may be attractive, there is a substantial risk that you are increasing the security for the bank and reducing your ability to deal with your assets.
What should I do?
In understanding your business lending we generally looking through your entire financial commitments and determining where (and who) you have commitments to, and where possible having these as standalone and with different institutions.