Me, Myself and My Bank – Understanding the Relationship

26 July 2017 |
by Jo Haigh

The relationship between yourself and your bank is an interesting one, in that both sides tend to see themselves as the most important player. In fact, it is likely that one side will indeed have the upper hand and strangely that may not always be the bank.

Any good business relationship is based on a number of key principles:

  1. Honesty
  2. Trust
  3. Win, win

Of all these three items trust is without doubt the hardest won and easiest lost and yet it's probably the most important.

Trust is broken for lots of reasons, but here are some of the main reasons to be aware of, so take note, they apply to both sides equally.

  1. Over promising and under delivering
  2. Disrespectful behaviour
  3. Undermining the other side
  4. Not accepting responsibility or blame
  5. Using threats to win a point
  6. Deliberately lying

Trust is naturally embedded via the opposite actions, but there are a few specific things you can do to start off on the right foot or to help repair a damaged relationship.

  1. Come clean ASAP if you have done any of the above
  2. Provide tangible proof that you won't do it again
  3. In all future engagement be consistent

Although the funding market is improving, your relationship management shouldn't be taken lightly. Even if you are able to swap funders, you will still find it time consuming and expensive. Equally many funding / business relationships are fragile, with many funders in particular looking for reasons to exit. If this feels a little like your current position there are two very different approaches, each with quite different risks attached to them:

High risk

  1. Make it impossible, if not very expensive, for the funder to exit. In simple terms this means you have borrowed so much they have now no choice but to stay in the game to have any chance of exiting out at all with any value. This may mean they actually have to lend you more initially.
  2. Take a pre-emptive step. Go to your funders and acknowledge fully the issues, but do so in tandem with a well thought-out remedial plan that should include the following:
    1. Substantial personal sacrifice, be it salary, cars or benefits
    2. Alternative funds, friends, family, assets, sales, creditor support, debtor pressure, de-stocking
    3. Evidence you have already started on the above two i.e. this isn't a lip service exercise
    4. Debt reschedule suggestions

This will be very unpleasant all round to say the least as it will be done very begrudgingly with a 1,001 covenants that are likely to be akin to personal asset stripping in appearance. But it may buy you the time you need.

Low risk

You will have to face large fees if the bank supports you through this. For example, monitoring fees will almost always be a given and you may even have to sacrifice some equity in exchange for the support. But it may keep you in the game.

So finally - it's obvious the real way of handling this relationship is not to let it get into a bad place in the first place but, should this happen, a word from the wise; do not let it fester. Action is essential as soon as possible.

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