Want to raise additional finance or re-finance existing borrowings? Read our 4 step guide to approaching your bank

A North West Survey (The Business Barometer) reveals that a third of businesses in the North West are missing out on finance, simply because they are afraid to approach their banks and ask for it. One in three of the survey respondents stated that they had not asked for increased credit from their bank for fear of either being turned down or the bank deciding to increase the cost of their existing borrowing.

Interestingly the survey also showed that whilst 32% of businesses in the North West are not happy with the level of personal service provided by their existing bank, they are reluctant to change to another. It seems to be a case of “better the devil you know”.

Approaching your bank - a 4 step guide

Banks now have much better resourced teams which focus on property re-financing and are able to quickly identify loans which may be headed for difficulties further down the line. Where a borrower feels at risk of a covenant breach, it is best for them to initiate early discussion with the bank to avoid the bank later setting the agenda and being in control.

Often discussions start on the wrong footing as there is an assumption that because a borrower has been a customer of the bank for many years, the bank will be more inclined to agree a lending request. The fact that the borrower has paid loans on time or knows senior banking employees will help the borrower’s credentials but that is as far as it goes. The bank’s decision will depend on its policy and its appetite for property finance. It may be the case that property has fallen out of favour and the bank may be looking to reduce exposure in the area in which case the borrower’s request may not be met with the most positive reception, despite the borrower’s track record.

A borrower should understand what is driving the bank’s strategy. Does the bank wish to reduce its property exposure? If it does, how will it go about doing this? If the borrower is in difficulties, it must consider the outcomes for the bank of any re-financing/re-structuring. In stressed and distressed positions, banks tend to have more options than borrowers.

The above is not intended to be a list of actions to follow, but rather, some food for thought. We are in a market where banks are much more robust and have significantly more resources available when looking at re-financing/re-structuring situations. For a borrower, just being that little bit more prepared can make all the difference in often difficult negotiations.