Banks and other financial institutions are vital to your business. Even if you're satisfied with the service quality, you should still meet with your financial institution once a year to discuss your banking needs, such as where they could improve their products and services.
If you're not happy with your financial institution, shop around for a better deal before leaving.
Refinancing your debt finance could involve:
- changing lending institutions – but retaining the same debt products
- funding the business from different debt products – with the same or a different lender
- combining debt into a single facility or product
- increasing or decreasing the total amount of the borrowing as part of the refinancing
- changing the repayment amount or timing
- increasing or decreasing the security offered to the lender(s)
Keep in mind – you don't have to do everything through the one financial institution – many businesses split their banking between two or more financial institutions for more control.
Use the following process to review accounts and facilities:
Create a list of all business accounts
In the list:
- include what the account is used for
- include account details – such as branch, BSB, account number, account name
- make note of any special arrangements with each account – such as automatic transfers
- include all social club accounts, old businesses, branch accounts, petty cash accounts and special purpose accounts – you might be surprised at the number of accounts you have
You can get this information from your account statements, or by asking the financial institution.
Get a letter of facilities
Build a complete picture of all your banking facilities by requesting a 'letter of facilities' from all the banks you deal with.
In the letter, ask your banks to make sure they detail all your facilities, including:
- credit or purchasing cards
- merchant, trade and lease facilities
- internet banking
- cheque cashing
- any information on loans that you have – such as loan-break fees and early termination fees
Select your top 3 preferences
How you select your preferences can be based on any criteria, such as:
- the financial institution you have the most transactions with
- the quality of service and friendly staff
- who can offer the best prices
Knowing and having a good relationship with the account manager is often a good reason to include a financial institution in your list.
Infochoice provide a small business loan tool for you to compare offers and see who's got the best business loan rates for your needs.
Meet with your current financial institution
Once you've chosen your top three preferences, give them a chance to improve their prices or service by organising to meet them in person.
Conduct a detailed review of your business banking procedures with your bank's representative. For example, if you run a retail business, the areas to review would be:
- loan fees
- interest margins
- merchant facilities
- cash handling
Often your circumstances have changed, business banking products have changed, or both.
A review will help you decide if a better or cheaper service has become available. Be open and disclose all information – including accounts you have elsewhere. A financial institution will usually give you its best rates if you do all your banking with them.
When meeting with your current financial institution, you should prepare and take a profit and loss budget and a cash flow forecast to show them the projected financial position of your business.
Review your current financial institution's offer
You may decide to stop your review and stay with your current financial institution offers you improved pricing and service levels.
If you do decide to stay, ask for a letter of agreement that includes the renegotiated fees, charges and service levels offered – and if possible – negotiate these new terms for one to three years.
When to meet with alternative financial institutions
It will cost you time and money to move to a new financial institution, so be sure they genuinely offer much better prices, products or service.
Before you change, consider these questions:
- Will they sign an agreement on the pricing for three years?
- Will your business pay extra to switch to a new financial institution, for example, the costs to notify customers and suppliers, and changes to deposit and cheque books?
- Does the new institution have good service? Ask your customers or suppliers who have an account there about their experience.
Give preference to the financial institution that allows you to meet with the bank staff other than the account manager, such as the manager or regional manager.
Things to consider when refinancing a business loan
Do the math
First, make sure you will be saving money.
How significant are your cost savings? Consider if the time spent refinancing will be worth it for the amount you save.
Small businesses that routinely take on high-interest loans could face more scrutiny because they often have cash flow issues.
Avoid using your new financing to pay existing loans instead of growing your business.
Avoid Merchant Cash Advances
A Merchant Cash Advance (MCA) is when a business sells a portion of its future credit card receivables. It is a type of financing that is easy to obtain, but far more expensive due to high interest rates.
Poorly run small businesses end up taking on a series of merchant cash advances to keep the business going. That’s a bad sign for some lenders as it often means the business is not borrowing carefully or prudently.
Don’t try to mislead a lender
The biggest flag for lenders is dishonesty and it can have serious consequences.
Providing misleading or false information about your business or how you intend to use the borrowed funds will always raise red flags with a lender.