My Call To Banks

Jane has been banking with a XYZ bank since she opened her business 6 years ago. She has borrowed before with the bank through an overdraft and has handled it quite well.  Jane hires ten employees most of whom have also opened personal accounts with the same bank. They have also done some personal borrowing as well with that bank and some have even used their investment products. For this reason, Jane assumed that the bank would be the first to support her when it was time to expand her business. The same bank that not only has a business account with XYZ, but also now benefits from personal banking from her colleagues. Jane approached the bank for this expansion loan.  Jane was not given any specific person to deal with and kept being thrown back and forth.  Jane had all the required documents in order such as audited accounts, business plans etc. At one point the bank asked for additional security i.e. a property.  Even though Jane had wanted to get this loan without that security (because she was buying equipment that would be the security), she was prepared to give it to them.  However no one got back to her and gave her a response.  She could not even get a meeting to discuss the issue properly.  It so happened that at that particular time a friend of hers introduced her to another smaller bank.  Let’s call this bank EFG Ltd. EFG had never dealt with Jane before.  Neither her nor any of her colleagues had done any banking with EFG Ltd.  After one phone conversation a relationship manager was dispatched to her office and they collected all her documents.  In about two days they got back to her requesting for more information on the equipment she was buying and the suppliers.  In two weeks Jane had an offer from this bank. Was it a perfect offer?  Absolutely not and she still ended up having to give additional security especially because she was a first time client.  But in exchange she was able to negotiate for a lower interest rate and her overdraft limit was increased.  But most of all, Jane liked the fact that they responded to her call and treated her like she was important.  As an experiment, Jane went and asked her old bank (XYZ) for a car loan for a similar amount to what she wanted to borrow for her business. They were more than willing to lend her the money and use the car as security. The loan would be processed in 48 hours.

Do you see the problem here? Firstly, XYZ is willing to lend to Jane’s employees but not to Jane to grow the business. They entrust that she will continue being able to regularly pay her employees the kind of salaries they need to service personal loans, but were obviously not interested in lending her money to grow the business, that will lead to her paying them more or employing more people. They see the business as risky, and want all sorts of security) but do not see risk in the salaries that the business generates. They will process personal loans in 48 hours but take forever with a business loan. Banks – how can a salary be more secure to you than the enterprise that generates that salary? I have spoken to several business owner who say that the collective personal unsecured loans banks are willing to issue to their employees for consumption purposes is higher than the loan they are willing to give the same business for growth. Banks, my challenge to you is to evaluate what business you are in?  Funding growth or just helping people consume?  Growth to you is risky, consumption is not.  Aligned to that is that fact that Jane could get that same amount for a car but to use it on expansion was just not interesting enough.  She could not even get someone to respond to her business needs but they were ready to respond to the car loan. So this bank was willing to fund a depreciating asset but not to fund the appreciating entity. No one asks you for additional security to fund a car, which is losing value over time. My second challenge is not realising who your future big customer is.  XYZ to date have not yet realised that most of Jane’s banking transactions have gone elsewhere. She just keeps enough money there to fund salaries simply because that is where her employees bank at the moment. I can guarantee you if Jane’s business keeps growing, XYZ will come back to chase her but she will not open the door again. EFG did not provide a perfect solution but at least they came to the table.  They recognise the potential and have started treating their future big customer well now. In return for the not so perfect solution they gave her something – a lower interest rate and a larger overdraft. At least she feels like EFG are on her side.  Many times it’s just a response that people need.

Jane’s story is not made up. This situation is common amongst business owners and mimics an experience I have just had recently.  As I talk to more entrepreneurs many seem to have faced similar challenges. Many banks say that SME’s are key target market for them but I think very few are listening to the needs of those SME’s and responding to them.  They talk but they don’t walk. We keep saying entrepreneurship is the solution to a lot of economic challenges, but banks are not willing to enable the solution. Now the decision makers in banks may not read this article.  But maybe some people reading this can take it to someone who knows someone who can reach a decision maker.  My call to banks is simple. Rethink your lending model when it comes to businesses. Evaluate why you are willing to lend to their employees for consumption but not the business. Take care of your future big client now. And like in Jane’s case remember your competition may be just right round the corner.