1. Initial situation
Does this sound familiar? You want to buy a machine for your business or your customer payments do not come in as planned. You approach your bank, ask for a loan and present your balance sheet with the latest business evaluation. Questions follow, doubts are expressed, and possibly there is a rejection.
We all still remember the financial and real estate crisis of 2007/2008. The rescue of banks, the provision of liquidity as well as capital and the tightening of legal provisions or banking regulation were intended to provide relief. The debt crisis of some EU countries that followed in 2010 with the problems surrounding the euro also required great efforts, which were solved less by politicians than by the ECB.
After a prolonged upswing, we are again facing a similar situation in 2019/2020, but it has increased in strength. Further problems have been added (risks from Brexit and trade restrictions, primarily between the USA and China, plus the refugee issue in Europe).
The consequences of the coronavirus, which cannot yet be conclusively assessed in economic terms, are also having a serious impact on the global economy. The spectre of recession is looming in real terms. Governments intend to take counteractive measures. Central banks will also have to respond massively. The aim was to save the economy and the euro.
In this situation, banks and savings banks are coming under pressure from two sides. A deteriorating economy and low interest rates are putting enormous pressure on their earning power and even threatening their existence.
One reaction can be seen in the increase of fees and costs, the reduction of staff and a reluctance to lend in the direction of good credit ratings (further regulation through Basel III).
It has been shown time and again that medium-sized companies with average or only adequate credit ratings have difficulty obtaining financing for working capital and investments.
Practical tip: That’s why it’s important for you to adapt as quickly as possible. Get ready for a change in financial communications. Be proactive and take precautions – with the following recommendations.
A good rating is the measure of all things. Beyond the balance sheet figures, the so-called soft factors (business environment, competition, customers, management, account information, information policy, etc.) play an important role. The result of one’s own creditworthiness is reflected in the rating, which the banks each determine for their house according to legally prescribed regulations.
The following recommendations for bank communication do not guarantee that you will be granted a loan, but they do increase the probability. This is because you are creating a win-win situation – openness and reliability create trust. This is a good basis for a prosperous cooperation.
3.1 Communicate regularly and openly
Seek regular contact with your corporate account manager and your principal bank.
Checklist: Communicate regularly and openly
- Build a good personal relationship.
- Create an environment of mutual trust characterized by openness and transparency.
- Accept the banks’ need for information. Be especially responsive to “critical” questions from the banker and try to rebut them.
- Approach your bank in good time. The examination of your loan request usually requires a certain processing time.
- Have a detailed balance sheet discussion with your bank every year. Talk about strengths, weaknesses and suggestions for improvement from the bank’s point of view. Also ask about the bank’s impression of your balance sheet.
- Be reliable: Don’t promise what you can’t deliver and deliver what you promised.
3.2 Prepare yourself and the environment
There is no substitute for good preparation. Therefore, take the necessary time to consider which documents need to be presented and what they should contain. The best way to do this is to put yourself in the position of your counterpart.
Checklist: Preparation and environment
- Be well prepared. Present the facts simply, clearly and meaningfully in a visually appealing form.
- Create a friendly atmosphere for the bank meeting and avoid deadline pressure.
- Invite your banker to visit your company. Hand over documents, flyers and advertising material of your company.
- Think about possible discussion points and securities beforehand.
3.3 Communicate competence and future viability
Express competence and future viability of your own company.
Checklist: Competence and future viability
- Present yourself as professionally experienced and competent. Conduct the interview in dialog. Show that you are the right person to steer your company.
- Develop an overarching mission statement (vision) and build your company goals on it.
- Present your business model and strategy and show clear structures that are as simple as possible.
- Develop a “financial story” that also generates emotions in the reader.
- Present your company’s competencies with special know-how, customer and development potential, innovative strength and, in particular, its unique selling proposition.
- Describe the market relevant to your company, the competition and your market position.
- Show the future (successful) earnings situation of your company with figures. This includes – in addition to balance sheets and BWAs – planning calculations such as investment and financing planning, profitability and debt service calculations. Develop future scenarios with different assumptions.
- Present figures, documents, etc. realistically; do not try to “make them look good”. Demonstrate that you are viable even in a “worst case” scenario.
- Regularly review your balance sheet and P&L ratios with a view to improving your creditworthiness or rating.
- Draw up a viable financing concept, taking into account total debt, liquidity and debt service capability.
- Be sure to comment on the numbers provided, especially if there are unplanned variances.
- Also show that you are prepared for contingencies (emergency planning, pending succession in the company).
- Face the rating and try to influence it positively. Talk about it with your bank advisor.
3.4 Create alternatives
Be flexible in financing. Think and act in alternatives here as well.
Checklist: Create alternatives
- Establish a second bank account.
- This will expand your financing options and give you a competitive edge.
- Since such a setup must be carefully prepared, you should allow for a certain amount of time.
- Also include alternatives such as leasing, factoring and equity capital in your considerations. Also consider public funding and government guarantee programs for your financing plans.
- Look specifically for financing alternatives in the area of the numerous fintechs or also mediation platforms on the Internet.
Practical tips: Ideally, follow the practical tips below in your bank communications:
- Remain faithful to the contract and, if necessary, coordinate planned change requests with your bank in advance.
- Make absolutely sure that there are no unarranged overdrafts. Check in with the bank beforehand.
- Check your financial requirements, e.g. whether the current amount of your overdraft still corresponds to your current business volume/needs.
- Coordinate the scope of the required documents/information requests with the bank in advance.
- Check whether collateral released by repayments made can be returned.
- Develop a medium-term financial strategy beyond today.
- When financing investments, check whether you can also contribute equity.
- Regular, well-structured reporting is also a good basis for indispensable crisis prevention.
- Keep up to date on the market of fintechs and intermediary portals.
- You are more than 100% tied up in day-to-day business. Therefore, talk to your consultant. He or she can confidently support you in the multitude of tasks you have to perform in the area of banking communications.
All information and details in our articles and information have been compiled to the best of our knowledge. However, they are provided without liability. This information cannot replace individual advice in specific cases.
Link to the german version: https://thevisionworks.de/bankenkommunikation