Is your bank squeezing the living daylights out of your business?
Does it want to reduce the overdraft and other borrowings, while increasing margins and fees?
Our friendly banks may not be as friendly as they were despite government intervention and investment, ‘Enterprise Finance Guarantees’ (EFG), price promises and more, the banking and economic crisis continues to hurt developing businesses.
Often core borrowings in a business take the form of overdraft and commercial loans secured on business or private property.
The general collapse of the financial markets coupled with Basel II legislation has impacted adversely on the banks appetite for overdraft, or term lending, unless fully secured.
Those businesses with little or no security may already have an issue however others may now fall foul of the phrase which these days seems to generate loathing and fear in roughly equal amounts throughout an increasingly onerous process; ‘Loan to value’ (LTV).
The issue is two-fold.
Banks have reduced the LTV and I for one would love to know of any which will now exceed 70-75% of commercial property for example?
Property values have fallen and may continue to fall. Therefore our SME who enjoyed a £200,000 overdraft secured against his factory and offices valued at £250,000 (80% LTV) must now incur the expense of a revaluation at his next Annual Banking Review.
This valuation naturally evidences a reduced value by say 15% to £212,500 and his friendly Bank Manager (with little or no authority) takes the opportunity to also advise that a change in policy permits a maximum LTV of 70%.
Coughing into a tightly clenched fist the Bank Manager also mentions the increased margin from an acceptable 2.5% to somewhere approaching 5.5%.
There! In a single interaction our hard-working SME has:
Been forced to pay a Valuation Fee, stumped up around a ‘grand’ for the Annual Bank Review Fee, been told that his interest charges have been doubled (based on current base rate)
The good news?...
The interest charges will be based off a smaller overdraft, so the actual cost of paying the quarterly interest is somewhat mitigated.
The sudden realisation?...
The bank is reducing the working capital available to the business by over £50,000 and if our businessman is unlucky enough to have already borrowed this within his existing limit, a ‘paper exercise’ becomes a lesson in repaying ‘hard cash’.
Indeed businesses are not simply the ‘cash-flow victims’ of a widespread banking squeeze, but may be under increasing pressure to pay suppliers sooner rather than later, while at the opposite end of the process their customer’s may be taking 90 days credit against supply terms clearly state at ’30 days’.
There are various solutions available in the commercial market to help turn ‘Cash-trickle’ back into Cash-flow’.
While Stock and Inventory finance can generate positive cash-flow against a business’s trade creditors, Invoice Finance can accelerate cash income generated against invoices to customers (trade debtors).
Appropriately structured Asset Finance can help a business generate positive cash-flow from working assets by ensuring the cash generated from profit income exceeds the finance repayments costs.
B2B Cashflow Solutions recognises the issues experienced by SME’s and banks alike in a difficult climate which is why we have worked hard to develop a ‘whole process’ suite of finance solutions to business.
It may be time for the SME’s to help out the banks by securing alternative facilities designed to turn ‘Cash-trickle’ back into ‘Cash-flow’. Your bank manager will surely thank you.
B2B Cashflow Solutions Ltd
Member since: 10th July 2012
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