Battling with the Banks — part 1

Have you spoken to your Bank Manager recently? The banking and finance industry have come under a lot of flack for their behaviour towards businesses which are experiencing difficulties. I would like to add to that flack.

Lack of financial support

I am prompted by a comment by a former senior manager from the failed Interwest Group, who said he felt that the banks had behaved very badly and had unnecessarily contributed to the demise of the company. He quite rightly pointed out that the company could have survived with some short-term financial assistance.

Interwest was the only Australian-owned company among the major players in our hotel industry. Surely that makes it worth supporting?

It’s not only the big companies that are feeling the squeeze. Many of my smaller clients are suffering the result of a turn-round in the attitude of their banks. Six months ago it seemed everyone was having credit thrown at them and comfortable relations with the bank were the norm; temporary extended overdrafts were a phone call away, a loan was easy. Now money is very tight, and everything has to be absolutely secure. Directors’ guarantees, mortgage security . . . the lot.

No bricks and mortar security; no loan

While I can appreciate the Banks’ desire to safeguard their interests, they should not base their transactions purely on the presence of bricks and mortar security. Business is a risky enterprise at the best of times. If we are to be asked to pay outrageous bank charges and extortionate interest rates for abysmal service, why can’t they share the risks?

If the banks will not financially support businesses, how do they expect the

bricks and mortar they so highly regard to be created? It seems simple to me; if businesses fail, unemployment grows, disposable income decreases and markets shrink — a vicious circle with the potential to destroy an economy.

My father once said to me that if you can prove to a bank that you don’t need any money they are quite happy to lend to you, but they don’t seem to be there when you need them. It seemed funny at the time, but more and more business owners are finding that this is grim reality.

When bureaurcrats deal with business people . . .

I think the problems between banks and business all stem from a lack of understanding of customer needs. Most bank managers have developed through a system that is bureaucratic to the point of almost being public service in nature, and have not experienced the process of owning or managing a business themselves.

Take a recent experience of my own as an example. I was recently offered a sophisticated 6-month old photocopier for a small fraction of it’s value. I wanted to buy the machine because calculations revealed that the purchase would save my business about $250 per month.

My bank manager floored me by refusing a lease because the amount was too small. While they were happy to take the big leases for cars and computer equipment they would not do a small deal because they would not make enough money.

I finally had to go to another bank, which was prepared to offer the lease even though I was not a customer. I didn’t want to do that; I preferred to deal with the one organisation. My bank manager failed to appreciate my needs and made no attempt to understand my business.

Financial security is a business necessity

In these days of economics built on credit, the business manager needs to have some form of long term security in relationships with financial institutions. A suddenly withdrawn overdraft, or a refusal to provide support during a lull in cash flow can often compound what is already an extremely difficult time for a manager.

Building a business is a long-term project that benefits the

entire community, and should be supported by that community. It is difficult enough during stable times, but nearly impossible with rapidly moving financial goal posts.

Business people have a right to feel angry. The banks and financial institutions throw huge sums away backing the non-productive takeovers of our speculative gamblers, meanwhile allowing smaller businesses that would contribute to our economy to fail.

I would like to see a new type of financial institution spring up. Perhaps a co-operative business bank with a philosophy of long-term small and medium business development. One with managers who have been there and done that, and who are prepared to do more research before pulling the pin or saying ‘No’.