Business Banking Series Fact 5: Why a business’s perfect borrowing history is of little relevance

This may sound surprising, and to an extent not totally true of course, but I'm going to discuss how a slight change in mindset can help you pitching to banks for better terms.

One of the most regular scenarios I come across is a business who's banking or commercial mortgage terms have got worse, despite being a "perfect, long-term customer".  In many ways this goes back to Fact 2, and the realisation many business owners have that loyalty simply does not pay.

"But we've never missed a payment, never gone overdrawn...".  This leads to the natural conclusion that the banks are not lending, and the banks are not here to help anymore.

The difference in looking at your business is this: are you pitching the past, or are you pitching the future?  A bank's credit team, as the old style bank manager used to do, will conduct risk analysis on your business.  The key question they ask is what are the chances of your business failing to keep to a commitment?

Whilst past performance is helpful when determining the type of client a bank would want, it is not a great indicator of the future, and this is not personal!  Banks are assessing a number of variables based on the future economic outlook, the outlook for your sector, and the outlook for your size of business.

Banks are more interested in justifiable explanations and trends.  Interestingly, if past performance has been poor (e.g. a loss made 2 years of the last 5 say) but the trend is upward, and the future looks bright, banks will take this into account.

As an example perhaps the lower turnover/profits were because of required internal investment, which has subsequently resulted in increased turnover recently, and high net profits.

So the point is this: when pitching to banks, particularly for commercial mortgages and other forms of business finance, the trends of the business and sector, current and future, are better indicator to banks than past borrowing history.  Show that your business is on the up, or potentially on the up, rather than rely on the past for approval.


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16 Facts At a click and a glance

1 - Why going into the High Street branch is not the best way to source a commercial mortgage, business loan, or business banking manager
2 - Brand loyalty does not pay.  I'll explain why your current bank is not incentivised to offer a better deal
3 - Bank managers that understand your business do still existbut they are not where you used to find them. Find out where they are, and how to access them
4 - The good news about Business Bank Credit policies: the criteria for assessing businesses is changing regularly, and in the main terms are improving
5 - Why your perfect borrowing history is of little relevance, and why its not personal
6 - You can profit from moving bank, right now, by accessing a much misunderstood fund, as well as improved terms
7 - Different banks like different sectors: what's happened
8 - State-owned banks: an update on where they are
9 - Privately owned banks: an update on where they are
10 - Interest only commercial mortgages: today's marketplace
11 - How a change of mindset can be of great help
12 - Why banks want to know your inside leg measurement, and why it’s not personal
13 - How to work out if a bank will lend to you, right now
14 - Debt service cover: what it means, why its important and the good news coming your way
15 - Why you may need to bank with more than one from now on
16 - If your business does not own property, nor wish to buy one, there are other, new, niche financiers available that can help with your requirements.


About Chris Davidson


Chris Davidson is Managing Director of Discover & Invest Ltd.

He believes passionately in providing businesses with market-leading financial insights that have a positive impact on the bottom line.  As a result, Chris helps get the best rates and terms available at any one time.

Connect with Chris on FacebookLinkedIn and Twitter to keep abreast of the latest market offerings.




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