8 ways to improve negotiations with your bank

Learn some valuable tips on how to work with your lender to get better terms for your loan.

If you're experiencing, or just anticipating, cash flow issues, it pays to consider what your bank can do to help.

That's why, whatever your current circumstances, it's worth trying to build a relationship with your bank. More importantly, with someone within the bank who has the power to negotiate directly with you and make decisions.

Here are eight tips that may help with any future negotiations with your bank.

1. Contact your bank before you need help

While getting hold of your 'bank manager' can be difficult these days, perseverance is crucial. Moreover, it's best to contact them before you need them. Then you can start the relationship from a position of strength, not weakness, when requesting a loan.

2. Do your research

Before negotiating a term loan, you should use your contacts within industry and banking to obtain information on the types of covenants that the bank might demand.

Armed with this knowledge, you can mention the requirements of other banks if the lender you've approached is unduly restrictive.

3. Monitor your credit score

Your business has its own credit score based on factors such as:

  • the number of trade experiences you've had
  • outstanding balances
  • your payment habits
  • your use of credit
  • your business' turnover

Getting a copy of your business credit report in advance will help you speak with authority about your creditworthiness and your business' ability to overcome its current challenges.

Learn more about improving your business credit score

4. Focus on your needs and options

Before beginning the negotiation process, you need to know exactly:

  • how much money you need
  • what your other possible sources of funds are

First, this will show the lender that you've done your homework, which makes you seem more professional.

Second, if you know there are other ways to get funds, you won't feel pressured to accept terms you find unfavourable. In fact, the bank might be more willing to negotiate when they know they have competition for your business.

5. Try to think like a banker

The success or failure of your negotiation may be determined by how 'attractive' your bank finds your business. The metrics by which this is judged can change based on:

  • the economy
  • your industry
  • your company's risk profile in the context of the bank's overall risk appetite

Don't take things personally, but try to understand the factors that are influencing the bank's decisions. The better you understand its motivation, the more likely you are to come up with ideas and projections that may calm any concerns.

While you'll have your red lines, be prepared to compromise if the terms you're offered are acceptable and you think a better offer is unlikely. If your bank has an idea you didn't think of, hear it out.

6. Know your numbers

Review your finances and practice your pitch. You should be able to explain:

  • the overall growth and profitability of your business
  • the impact of recent events or trends
  • how much money you need to position your company for success

7. Understand your alternatives

Don't hastily agree to anything you don't fully understand. Ask questions. Get an outside opinion if you think it would be helpful. Remember you have other alternatives:

  • contacting another bank
  • using personal funds
  • negotiating with vendors and creditors
  • invoice factoring
  • private funding
  • crowdsourcing
  • cutting expenses

Hopefully, your bank will beat these options. If not, you still have a plan B.

8. Take your time

Any financial shortfall can feel like an emergency, especially if your business is struggling. Nevertheless, don't be afraid to take time following your negotiation to think through what you'd like to do next.

Will the proposed solution really solve your problems? Are you prepared to take on additional debt or are there better alternatives such as debt consolidation?

If you have doubts, seek independent financial advice.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Making business finance work for you

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

Read the guide to making business finance work for you

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