Be Careful With Banks



Basic Warnings When Dealing With Banks

  1. Choose carefully.
    You don't always get it right the first time round. It's best to try two or three banks and practice on them before making the final selection.

  2. Never sign a personal guarantee.
    If you can avoid it, do not sign a personal guarantee. Banks usually insist on this if you are taking out a major loan. If possible, direct the bank to other security such as the business assets. In addition, never ever allow your spouse to sign a guarantee. Not only will this protect your relationship in the event of anything going wrong, but it is not wise or fair for a spouse to sign a guarantee for a business that the spouse may have little involvement in.

  3. Borrow from different banks.
    It's probably a wise move not to borrow from the bank that also holds the mortgage on your home. It is best to keep the business affairs separate from your private affairs, if possible. If the business runs into trouble the bank may want repayment of your whole mortgage as well as the business borrowings, so it is possible you could totally lose your home. Try and keep the two arrangements separate and go to different banks, so that one bank deals with your business and the other bank deals with your home and private affairs.

  4. Never put up your home.
    Keep your business affairs separate from your family and personal affairs. Do not raise a loan for the business on your home unless there is no other option ( and even then think hard before you do it and be aware of the serious consequences). It's better, if the business fails and your home and family are protected, than if the business fails and your home and family go down with it. No business is worth putting your family in jeopardy. Secure the loan with the whole business, including assets and stock. Keep the home totally separate.

  5. Watch the assets you declare to the bank.
    When you are dealing with your bank, they will require you to make out a statement of personal assets and liabilities, as well as your business assets and liabilities, as part of the application. This is because the bank will try and get security on those assets for any moneys they lend to you. Some businesses feel it is unwise to declare all their assets so this is a matter you need to take up with your accountant or other adviser. Bear in mind that the banks will not be very happy if they lend you money and find later on that there were more assets you did not declare and which they could have brought into the security.

  6. Using family and friends.
    The general advice is that it is a very, very bad move to borrow from your family and friends because if things go sour, it can destroy your good relationships. Sadly, many business owners prefer estranged relationships with family or friends (which can be worked on and hopefully recovered) than dealing with a bank that has no emotions involved in the transaction except to recover their money.

    It may be better to strain a relationship temporarily, than to go bankrupt because you have borrowed from a bank and the business has run into difficulties. These are issues you have to weigh up at the time and talk over with family and friends as well as your accountant or other financial advisers.


Should You Tell the Bank Everything
Many business owners do not like telling the bank everything about their business. They may feel the bank can be a friend and ally or a consultant, but not necessarily someone who they will confide in regarding personal and private financial affairs. There is always the question of confidence, which is important in the relationship between your business and the bank. If the bank suspects your business is failing or if the business is not going as well as it should, then they may feel uncomfortable regarding any exposure they have to your business.

Many owners do not inform their bank of the bad things that happen because they don't want things to get out of hand, unnecessarily. If you do have to see your bank about a situation of concern in the business, determine the cause and come up with potential solutions before meeting with your bank to discuss the issues involved.

Most banks will work with you to rectify any problems and as long as they are confident that their security is not threatened, there is no reason why the amicable relationship should not continue. In any event, most bankers do not want to know everything about your business, because they are also dealing with hundreds of other business clients.

They will, however, appreciate being informed of situations that may affect their position, so advise them when you need to and even though your bank does not have to be a business confessor, their suggestions and advice may come in handy when you need support in times of difficulty.


Problems With Your Bank
If you have a problem with your bank, the first thing you should do is arrange a meeting to see if the matter can be straightened out. If it is a complaint that can be rectified, then ask for the bank to look into the matter as soon as possible. If it is to do with customer service, you are entitled to lay a complaint and expect an answer, as well as an apology, if necessary.

If the bank refuses to correct the problem to your satisfaction, then you have the option of taking the matter outside the bank. A complaint can be laid with the Banking Ombudsman who will act for you and look into the matter.

Firstly, discuss the problem with the bank and if you are not satisfied with their response, then lay a complaint with the Banking Ombudsman's office. They will take action on your behalf.


Banking Ombudsman
The Ombudsman is a special officer of Parliament who has the power to investigate any complaint received. For example, if you have a complaint against the bank and you are not receiving satisfaction from that bank, you can make application for the matter to be looked into by the banking Ombudsman.

On receipt of the information, the Ombudsman will recommend to the bank concerned the steps needed to rectify the matter. If the bank fails to take the appropriate action the Ombudsman can report the matter.

The Ombudsman's recommendations are not binding on the bank but the Ombudsman has sufficient weight to request that the situation to be remedied without going into a formal investigation. The Ombudsman will not investigate a complaint if there is another remedy available, or if the matter is trivial or frivolous.