Queue jumping at the bank!

Its early March 2020 and I have just popped out to the supermarket to grab some flour as I’ve decided my new thing is going to be bread-making if these rumours of a lockdown are true!  

Move forward a few weeks and I am feeling much healthier due to a sudden reduction in my carb intake (there was wholemeal flour available, but I passed!). We are also witnessing the first weeks of the Coronavirus Business Interruption Loan Scheme (CBILS) and are again seen something similar to the ‘panic buying’ that cleared food shelves, albeit this time its just the one product, debt, and its free (for a year)!

As many of us experienced at the supermarkets, certain people appear to have found their way to the front of the queue, sharing stories on social media of how supportive their bank has been when they most needed them. Others however report to have been ignored by their banks, awaiting decisions with no idea when they will receive the essential funds to remain afloat! But were the successful businesses those who were the first in the queue; the early risers? It doesn’t appear so this time, instead they are the businesses praising a longstanding ‘strong relationship’ with their banking team.

So, how strong would you consider your relationship with the bank; have you ever called your Relationship Manager just to catch up, find out what’s new, and to update them on how things are going with your business? While we would historically consider this the job of the bank (and of course it still very much is), your typical SME Relationship Manager these days will have between 50 and 200 (depending on client complexity) businesses to manage. For the banker managing a portfolio of 200, their ability to get in touch with you is naturally limited to being purely reactive, but even keeping on top of 50 complex businesses can be just as challenging.

Assuming its been a while since your last correspondence, what should you expect when you do decide to pick up the phone (maybe you have an urgent financing need)? Assuming your manager is still employed by the bank and contactable, the most probable response to your urgent request will be a long shopping list of information so the bank can ‘refresh its understanding’ of your business...does this sound familiar?

Turning back to CBILS. On the face of it the scheme itself appears to be a no-brainier for the banks; the UK Government guarantees all but 20% of each loan so why wouldn’t a bank be able to process an application within 24 hours for a client they already have on their books? However, the 20% residual bank risk means they still carry financial risk and therefore the usual policies and procedures apply. There may also be other complexities to individual applicants such as existing debt to be considered. As such, automation of the funding process as seen for the simpler, 100% guaranteed Bounce Back Loan scheme, is extremely challenging. Data to the 6th May (latest from UK Finance) shows 54% of submitted CBILS applications had been approved (value ￡5.55bn). While a significant improvement on 21% three weeks into the scheme, this processing shortfall demonstrates the time required to physically churn the volume of applications (62,674 applications had been submitted across the market) as well as the complex decisions that still need to be made to ensure the bank is appropriately assessing its own and also the UK taxpayer’s risk (we all are the guarantors after all!)

So how can a business look after itself and help to create that important lender/borrower understanding in advance of the next critical situation:

1. Share information regularly rather than when you are asked to: For a lender, confidence in financial information is greater if it is consistent, so by building a financial picture over time with your bank, you can be confident the bank will have data it can use to make a quick decision when you most need it.
2. Purpose of funds: by talking regularly about your strategy with your bank, it should be immediately apparent to them what a request for debt is for when you come to them (in fact a good banker should have already anticipated it and have sent you some financing ideas). Banks (and more specifically banks credit teams) hate surprises, so by keeping your bank abreast of major contract reviews, large projects etc, you are preparing them for the next event.
3. How will debt be repaid: the primary attribute of debt as a means of financing is that it ultimately has to be repaid. As such a key part of any application is to demonstrate how your business will repay its borrowings (and within a reasonable timeframe). By making detailed cash flow forecasting a key element of your regular reporting packs, not only will the board be more comfortable in general, the bank will already know you are good for the money!

Ultimately, a broad bank relationship is essential to a swift decision when it is most needed, and with tens of thousands of businesses submitting urgent CBILS applications each week, it has clearly not been possible for relationship teams to manage this workflow over the last couple of months. It is therefore no surprise to see that clients praising their banks for their support at this time highlight the strength and depth of their relationship, whereas the grumblers simply refer to ‘the banks’ in their protestations!