The business relationship you should be reviewing

Banks usually conduct an annual review to see if they want to keep doing business with you. Sometimes they also review your performance on a quarterly basis against covenant hurdles you are expected to meet.

In reality, banks review your performance every day via your overdraft facility.

Banks are in the risk management business, which is why they have formal processes in place to review the performance of all their customers. Businesses are also in the risk management business, but how many regularly review their bank’s performance as a service provider?

Business owners generally only do this when there is a significant need or event often involving the bank not agreeing to what you want them to do. Perhaps it’s the “if it ain’t broken don’t fix it” mentality or the view that the banks are all pretty much the same that leads many business owners to believe it is not worth proactively reviewing their banking arrangements. For many, lack of time is also a factor.

But reviewing your banking relationship every two years makes a lot of sense. A review will tell you where you stand with your bank and indeed other banks. In turn, this will enable you to determine whether you should “put up” or “shut up”. It will also give you a better idea of whether your bank is likely to be there for you in a time of need. If you think they may not, then the time to do something about it is now, not when it could be too late.

There’s a number of ways of going about reviewing your banking relationship. One strategy is to conduct a formal tender process inviting bids from several banks, but this tends to be a time consuming and expensive process, especially for SMEs.

If you believe you have at least a fair relationship with your bank, a better way to start is to have a simple conversation along the lines of “we’ve been with you for several years now and we’d prefer not to go to another bank but we just need to be satisfied you are giving us the best possible deal”. The bank’s response will give you a good idea of where you stand with them.

If based on this response you think you have a strong case, you might then be able to negotiate improved outcomes like:

• Increased limits
• Lower fees and charges
• Release of securities including personal guarantees or the family home
• Improved lending terms and conditions such as reduced amortisation

On the other hand, if after talking to the bank you believe you are getting as good a deal as could be expected in the circumstances then it might be prudent to not make waves and simply get on with the job. At least you will have peace of mind that you’ve asked the question and have been satisfied with the response.

If you are unsure or if you remain unconvinced that your bank is putting its best foot forward, it might be worth quietly testing the market.

Is it time for us to do a review?

If you answer “yes” to one or more of the following questions, a review of your banking relationship probably makes good sense:

• Have you been with the one bank for more than five years?
• Do you feel that your bank sometimes takes the relationship for granted?
• Have you had a significant, unsatisfactory experience with your bank in the last three years?
• Do you think the bank might harbour reservations about you, your business or industry?

When is the best time to do a review?

The best time to conduct a review of your banking relationship is when you have no need for anything from the bank. That way both parties can focus on the bigger picture without having to worry about the immediate requirement.

Our experience suggests that the businesses that have the most to gain from conducting a bank review are those that have been with one bank for several years and have had no major issues. But these businesses shouldn’t wait for the bank to proactively approach you and say “you’ve been a great customer for many years, so we’d like to reduce your pricing or release your personal guarantee”.

If you don’t ask, you don’t get; but it’s a good idea to do some homework before you ask.

Neil Slonim is an independent business banking advisor and commentator and the founder of theBankDoctor.com.au.