Part
Six - Bank Account Conduct
I
have often had businesses referred to
me to refinance because "my current
bank does not understand my business"
and the client is having problems with
his/her bank. On receiving the businesses'
last six months statements, I can see
why. Their statements show frequent excesses
over arranged limits (now incurring an
honour fee of $15 - $20, This a new fee
introduced by the banks to educate their
clients to respect arrangements, with
the added benefit to the banks' bottom
line of course) and in some cases incurring
a dishonour fee (bank charge of $25 plus
embarrassment with the payee and penalties
with the IRD).
Banks
request the last six months statements
for any business that they are asked to
refinance because the picture described
above could possibly deter the bank from
helping. Even if they took the business
on, the interest rate would be higher
based on the expectation that the account
will require extra administration time
from the controlling manager.
Remember,
the banks want lending that can be left
alone once it is put in place. The staff
can then focus on selling other bank products
to someone else.
Another
aspect of account conduct is the usage
of the overdraft facility. The banks won't
generally give you an overdraft limit
higher than what you need (mainly established
by your cash flow forecast peak requirement).
A rule of thumb used by the banks is to
base the overdraft limit on between 10
- 15 % of last year's turnover.
When
the banks look at the usage of the overdraft
facility, they want to see it fluctuating.
In the old days they had a hang-up with
"Hardcore" usage ie it never
fluctuated into credit. I believe this
had two main reasons behind it - one was
that liquidity was tight for the banks
and the other was when the account was
in credit the banks were making money
out of their CANBI's (Current Accounts
Not Bearing Interest). In these enlightened
days canny businesses don't keep creditor
funds in cheque accounts, they transfer
them out or reduce floating debt. Percentages
of use can play a part in pricing also,
use an average of 50% or less of your
overdraft limit and the bank may consider
you a better risk for pricing purposes.
Businesses
don't like people helping themselves to
their products or services and neither
do the banks. So respect your arrangements
and you will find the banks understand
your businesses much better.
