Why Do Banks Say No?

It is one of the great mysteries over the last 6 or 7 years. Why do banks say they want to lend to businesses yet so many businesses seem to fail when they apply?

The problem most banks have is that you are their customer. They don’t really want to lose you as a customer, so saying ‘no’ can come quite difficult to them. The reason why they are saying ‘no’ is something they find even harder to communicate. It is probably a message that is easier put across should you not care if the customer stays or goes.

I hear a lot of reasons as to why the customer thinks the bank have said ‘no’. In the majority of these cases the real reason is something completely different, so it is no great surprise that we have a generation of intelligent business owners scratching their heads because the bank doesn’t appear to be justified or making much sense.

 

It’s The Way I Tell Them

Frank Carson, who would have thought he had anything to do with banking. However, it is all about how you tell the customer, or rather how that message is being passed down.

Do you remember when we were all kids and played Chinese Whispers? One of you would start with a message then it would get distorted along the line with something entirely different being said aloud at the end. This is what happens in banks.

You probably deal with a frontline manager, he takes your details, talks it through with you and presents the case to his credit team. The credit underwriter bases his (or her) decision solely on the facts of the case (and what the bank actually want – this bit is key) then gives that decision to your manager.

The Chinese Whispers part goes like this;

You, Your Manager, His Boss, Credit Underwriter, His Boss, The Last Boss, Your Manager, You

Bear in mind that if the proposal wasn’t quite understood at the outset then it can so easily be completely lost by the time that crucial decision is made. Sometimes there can be more certainty in buying a scratchcard, at least there you know the odds.

 

What To Do

There are always a few questions I recommend you asking your bank manager before you do anything, these questions can be found here in detail and are well worth reading. They will save you a lot of time.

There are also a few things you need to do before applying to your bank, my recommendation would be;

  1. Make sure your current account runs well, has been within it’s limit for at least 3 months
  2. Run a credit check on your company, then the same on you and all your directors. Look for any wrong information or bad credit
  3. Get some financial information sorted. Have some forecasts to hand and understand them. Have your last accounts ready and have up to date trading figures. With on-line bookkeeping systems there is no excuse not to have all this information to hand these days

Bear in mind why banks ask for this information, they want to know;

  1. You are a capable person
  2. You know what is going on in your business
  3. You understand the basics about your company

This means not blaming your accountant or passing the buck of producing financial information onto someone else. The bank want to know that you know what is going on, it is about credibility.

 

Things Ain’t What The Used To Be

Banking has changed, the good old days have gone. Work with it. My final point on this subject is that you should not assume your frontline bank manager;

  1. Understands your business
  2. Is in any way financially minded or understands accounts
  3. Knows more than you

The good bank managers that do know all the above are probably further up the food chain. Make no assumptions around knowledge, explain things diligently and go over the key things several times.

If you are unsure what the key things are, or how to go about it then give me a call on 01293 541333 and I will talk you through it.

By Dave Farmer

Lime_Consultancy

 

 

 

Dave Farmer is founder of Lime Consultancy, an award winning business finance specialist based in Sussex and working with businesses across the South.

2015-03-17T16:48:05+00:00