West Midland Businesses - Working Harder for Bank Finance; Richard Horton, Partner at Accountants Jerroms, Suggests the Right Approach to Deal with the Banks' Tougher Lending Policies

Article excerpt

Byline: Richard Horton

s the threat of banking col -lapse fades into distant AAAmemory, it has left at least one troublesome legacy. Shaken by the events of the financial crisis and the losses through bad debts, the UK's banks are taking a much harder line on security and risk with the result that the potential borrowing by business is reduced, despite Government ministers urging otherwise.

Some banks are using minor breaches of banking covenants to justify a complete reappraisal of their lending to a customer, while others are using such events to renegotiate higher inter-r est rates and charges.

As a result, many West Midland businesses are finding it harder to convince banks to maintain banking facilities, let alone increase them.

This could be a particular problem as demand and sales revenues begin to grow again, with the result that higher overdrafts are needed to cover cash tied up in higher levels of stocks and debtors.

So how should directors play this? Firstly, it pays to contact more than one bank, as the response from banks and the length of time that they take to reach a decision, varies.

Secondly, directors have to be prepared to submit a carefully thought out business plan, focused on market demand, together with a budget based on realistic assumptions and a sensitivity analysis if, for example, early expectations are not met.

It may even be necessary for owners to invest more equity in the business to give additional comfort to the banks. …