Time for an Update

Once again it has been some time since I updated the blog and what a few months it has been.

On the Isle of Man we have been adversely affected by the dramatic collapse of Kaupthing Frielander & Singer which resulted in a period of high uncertainty within the banking community that could have spread in to the wider economy. Whilst not yet resolved the Depositors' Compensation Scheme was amended but, in the end, after some consultation with the industry and with some financial commitment from the Government. We await to see how the Kaupthing saga unfolds.

On a wider issue it is interesting to see the positioning and posturing in the financial world and the changes in the relationships between the banks and their customers.

I have witnessed a major bank taking the opportunity to increase margins and fees to SME's at a time when businesses are beginning to be stretched. It was ever thus - history will show that this was what happened in previous downturns in the 80's and 90's. The phenomena is not new. Supply and demand being the excuse!

The relationship between risk and reward is generally regarded as the basis of pricing lending i.e. the higher the risk the higher the price - an interesting concept! I wonder if history will prove that this model was actually being utilised during the last few years.

It is now more important than ever to maintain or build your relationship with your bank as I have said previously. I would also suggest that you find the time to meet with and get to know at least one other bank - you never know when you might need them.

I strongly recommend that you provide regular management accounts and keep your Manager up to date with the good, the bad and the ugly - suprises have never been welcome and today it is even more important that the bank is not surprised. The face less men in credit will be looking for any excuse not do something - so make it as difficult as you can for them to reject a request for funding.

Be prepared to discuss fees and margins and understand what the cost of borrowing means to you in relation to the additional sales you will need to generate to cover them - in my view Bank Managers do not always understand the impact that these additional costs have on your business or what they mean in respect of increased turnover you will need to generate to cover them.

Finally, it will be interesting to see how the UK government monitors the banks - I worry about this because sometimes the right decision, despite what I have said, is to say NO!. Businessmen are not always right and a good bank manager will be able to work with his/her client to persuade them BUT I also think that in times of stress the easy answer is no so it will not be easy.

If you have a good idea be prepared and be thorough and hopefully you will have relationship with your Bank that will enable them to support you.