If your business has underperformed then you may find yourself dealing with a high-risk division of your bank. Every bank has a unique name for its “insolvency” division that disguises the purpose of its existence but make no mistake, this is the bank’s arm that will enforce its security if it isn’t happy with its position.
So a common question is how do you navigate in this environment?
Just like when you apply for a loan, the bank will make two initial assessments of its exposure to your business:
One of the main difficulties that arise in this situation is that the borrower usually has difficulty providing this information to the bank in sufficient detail and without being too optimistic about the business’ future. What follows is an aggravation of stress on both sides that puts the business at an even higher risk of failing.
What needs to be communicated to the bank?
Drip feeding bad news to the bank will destroy your credibility. If your forecasts indicate that you need flexibility or additional funding then you need to be upfront with your bank and be able to:
If you don’t have a three-way financial model (profit and loss, cash flow and balance sheet) that is capable of producing this information, then you need help. Don’t delay engaging a professional accountant to prepare this for you as if the bank doesn’t get comfort quickly, it is likely to engage its professional to prepare the information (and you’ll pay their bill). In most situations, this will be a qualified insolvency practitioner.
Key messages to communicate
While there may be many issues to address with the bank, there are some simple messages that must be conveyed:
Asking the bank for more money
When your business is tracking well, you’ll likely find that obtaining debt is easy. Don’t compare this with trying to get additional funding when your business is in any form of difficulty.
If you need to ask your bank for funding in difficult circumstances, then there are some key things to consider:
Business owners need to be careful if their business is in difficulty. If you are having any difficulty dealing with your bank you should quickly get the right professional advice to help you.
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