A lot of people see “The Bank Manager” as an imposing figure who they must go cap in hand to for seasonal finance or to buy land or other assets. In reality banks are a service provider to your business and finance is a competitive marketplace, so it’s possible to take charge of the situation and be proactive. Remembering, however, that relationships are also important as not only are we all human beings, but good relationships make it so much easier to get things done in a timely manner, plus access relevant products and services.
When it comes to seeking finance for your business a good first step is understanding how a bank views your business as it’s different to your accountant, agronomist, consultant or yourself. Banks are comfortable lending against an asset and a business’s ability to service its debt which is to build working capital and repay core debt. In fact, banks are obligated by regulation to be responsible lenders and only lend to businesses that can repay debt.
Then it’s a matter of what finance products work best for your business and in considering this it’s helpful to ask yourself how hard I would like to play the finance game. Do you want easy care products you barely need to look at or are you happy to move money around on a quarterly or monthly basis to get the best value. Different products come with different benefits, costs and charges so you need to be aware of these and ensure you are getting the best value for you and your business.
Finance comes in three basic forms; overdraft or working capital products you use every day to pay bills and receive income; short term facilities that are typically used to top up your overdraft for seasonal requirements; and long-term facilities or debt that you really only look at on an annual basis. All these products come in different forms with varying costs and charges the major one being what interest rate are you being charged. The rate can then be set internally at the bank or externally by using a benchmark such as BBSY.
With interest rates comes risk and so we then need to consider fixing rates, and this can be different for each of the funding sources. The bank can offer fixed rates, or you can use other tools such as interest rate swaps.
There are also alternative sources of finance such as vendor finance from your input supplier, crop liens such as CBH Pre-Pay and livestock finance. These sources are generally referred to as second tier lending as they are typically seasonal in nature and use an asset other than land such as grain or livestock as security.
You get what you pay for is true of most things in life and it’s true of finance products. A full-service bank that offers flexible products, good service and responds to your requests in a timely manner might cost a little more but it can be well worth the cost if it’s of benefit to your business.
It’s then a matter of putting this all together and negotiating an outcome with the bank which needn’t be as scary as it seems. You can make this process easier by knowing what you’re after and negotiating for a margin or rate that you know is competitive and values the service and products offered by the bank.
If all this seems a bit daunting don’t worry, Planfarm Finance is here to assist. We offer finance consulting services that can be as simple as a financial health check to ensure you have a competitive finance package that suits you and your business, assistance with negotiating a better deal or product mix with your existing bank, assisting with financial restructuring resulting from a change in your business such as succession. We also offer a finance brokering service.
Throughout the process we always put the clients’ interests first and are completely transparent with fees and remuneration. We work with you to get the finance you need for your business at a competitive rate.
