These are my views, based on experiences I've had with businesses I've come across.
State owned banks have two main ways of raising the funds to pay us back:
1. increase current account charges, and
2. sell existing mortgages on to other banks.
N.B. The requirement to sell commercial mortgages to other banks to pay back the taxpayer means the appetite to lend to businesses has to be greatly reduced
Business owners I have talked to and helped have experienced a range of measures which include:
- Letters received giving the business 90 days to re-finance elsewhere
- Quality Senior Business Managers have been replaced by very junior counterparts with little experience in their sector
- Overdrafts abruptly reduced by as much as 50%, virtually overnight
- Facilities for 2 year property development projects stopped half way through
- Interest rates on commercial mortgages increased by as much as 2%
It is undoubtedly the case that state-owned banks will not want to lose their best mortgages, because typically the current account banking, the profitable part, comes with it. However, it does not mean to say your business cannot get a better deal elsewhere.
The commercial mortgage market, unlike the residential market, is very opaque. It is possible in the residential market to find all existing products from all lenders using clever software. In the commercial game, this level of information and detail does not exist. Banks get a feel for a deal which is ultimately down to the interpretation of the management team's ability to deliver and the strength of the business model by Banking central credit teams.
If you wish to ensure that you're getting the best deal possible, it is important to use non-fee charging specialists with an up-to-date overview of the entire market, not just your local bank manager.
What a specialist would say at this juncture is that the State-owned banks are under enormous pressure to pay back the taxpayer, and as a result have a far more restrictive lending approach than the privately owned, independent banks.
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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 exist, but 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.