The ‘big four’ banks are powerful, but small business owners are not entirely at their mercy.
Australia’s banks have been in the headlines this week for all of the wrong reasons. Record profits, soaring lending rates and a lack of competition have seen media pundits and politicians alike stick the boot into the ‘big four’ players.
Start-up businesses may feel they will always come off second best to unsympathetic banks, but there are measures you can take to ensure you get a good deal. Here are the top 10.
1 Have multiple accounts
To most start-ups, the concept of having multiple bank accounts rarely stretches beyond having different business, personal and savings accounts with the same bank.
However, having separate accounts at different banks will help keep each provider on their toes and give you bargaining power. Shaun Bonett, founder of the successful property firm Precision Group, used to maintain accounts with three different banks. He could then play them off each other to secure himself the best deal. Try doing the same thing.
2 Turn to family and friends
Being at the mercy of a bank for your entire start-up funding can backfire. Having another revenue source will help spread the risk and ensure that your business isn’t derailed if your bank won’t budge on a loan or, worse, you can’t meet the repayment requirements.
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Speak with family members or friends to see if there are any suitable investors for your business. Just make sure the relationship is formalised and the conditions of the loan are clear on both sides.
3 Look for a VC
Better still, aim for venture capital funding. The market is tight at the best of times, but if you are an innovative, fast-growth business that offers an attractive return on investment, a VC could take some of your bank woes away.
Having a VC on board has several advantages. Not only will it provide you with much-needed cash, it will also impress the banks. A start-up that can show it has external VC funding is far more attractive to normally risk-averse bank lenders.
You should always thoroughly research the rates offered by lenders before signing up, but you still have wriggle room once you’ve chosen your bank.
“Be prepared to haggle,” says Richard Lloyd, director of Choice’s ‘Better Banking’ campaign. “Our research has found that the more pro-active you are, the better. The majority of people who negotiate with their banks get reduced fees and better interest rates. Don’t underestimate the power of asking.”
5 Plan well
A strong business plan is the foundation of any prosperous start-up and it can provide practical help in your dealings with the bank.
A comprehensive plan that clearly outlines a bright future for your business is initially a tool that can be used to secure funding. But it can then be referred to with evidence that your business is on track when asking for more money or better conditions from your bank.
You need to prove to your bank that it is backing a winner, and a lot of that will come down to your business plan. A strong plan will also give you funding options other than just the dreaded trip to see the bank manager.
6 Ensure strong cash flow
Similarly, a healthy cash flow will give you a bit of freedom from the bank debt hanging over your head. Work out robust payment schedules for customers that you will evidently enforce to ensure prompt payment. Get your pricing structure right, keep overheads to a minimum and negotiate a favourable deal with a reliable supplier.
Get all of these factors right and you will improve your cash flow, thereby reducing your dependence on your bank.
7 Consider smaller lenders
Most start-ups still head to one of the ‘big four’ banks, but with the government talking tough over more competition in the banking sector, other options should present themselves.
There are already a number of smaller lenders, especially online, available to start-ups. Do your research and see if you can get a better deal away from the more obvious options.
8 Develop a good relationship with your bank manager
Despite their depiction in the media, banks are staffed by human beings under the same kinds of pressure faced by start-ups.
Understanding the issues faced by banks, the targets they have to hit and the way they view small businesses will aid you in your interaction with them. Establish a close relationship with your small business manager and keep in constant contact with him or her. Not only will this provide you with insight into their point of view, it could also help sway some decisions in your favour.
9 Read the fine print
Hidden fees are the bane of all bank customers’ lives, so make sure that you are well versed in all of the terms and conditions placed on you by your bank.
If you feel that you have been unfairly treated, do something about it. You don’t have to go as far as the recent class action law suits launched by customers against banks for alleged unfair fees, but you need to be aware of your rights and hold your bank accountable.
10 Don’t be afraid to switch
It has been reported that 80% of bank customers don’t switch providers because they feel it won’t make any difference and they don’t like the hassle of making the move.
Don’t feel stuck with your bank as if you were in a grudge-filled bad marriage. Look around for other options and, if you see a better provider, make the move. Changing banks can be a little laborious, but the future of your business can be affected if you don’t take action. Even the threat of moving will cause your bank to sit up and take notice of your gripes, so don’t be afraid to deploy this tactic if needed.