Bank manager is
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your best partner
IEETING the banker is not veryone's idea of krelaxing ray to spend an hour or lore, so we asked Williams nd Glyn's Bank Ltd to meet ur readers on • neutral :round.
Whether your business is irge or small, at some time or ther it will encounter problems some large, some small. Then the problems concern nance, the help of the local ank manager can be invaluble, and many businessmen Fill vouch for a banker/ ustomer relationship that has ecome a partnership rather an a lender/borrower conqntation.
Though this particular "them nd us" myth can be quickly ispelled, others persist. For iany years the London clearing anks have traditionally been le principal source of short)rm finance for both business rid personal customers.
They are still, but now they lso provide much of the iedium-term finance (lent over vo to seven years) required by ritish industry, In November 976 the figure was some 6,180m or around 40 per cent I the banks' total lending to idustry.
More especially, because all le banks are naturally keen to romote the full range of their arvices, the precise advantages I the several types of lending ow offered are perhaps not lways fully appreciated by lose most likely to be looking )r some form of additional nance.
In the language of both anker and businessman, shortrm finance is frequently ynonymous with overdraft 'citifies. This form of lending is specially suitable for cornanies requiring short-term cash ) cover seasonal fluctuations in ales and expenditure or to prode additional working capital ntil they are ready to raise mg-term money.
An overdraft is both simple to rrange and operate. It requires minimum of documentation nd formality between bank ianager and customer and, nce arranged, money can be borrowed as and when you need it up to an agreed limit.
This limit can be fixed or can vary with seasonal needs; the bank's manager will work this out with you. The overdraft will be reviewed at the end of an agreed period and' can normally be renewed; indeed, many companies have enjoyed continuing overdraft facilities for many years.
The bank manager will also fix a rate of interest for the overdraft. This rate will vary according to the terms of the agreement, the type of business involved, and whether or not any security is offered.
.Normally, interest is expressed as a fixed percentage over the bank's base rate. Since base rate tends to be linked to the Bank of England's Minimum Lending Rate, the interest rate for overdrafts may move up or down according to nationwide monetary policy.
When it comes to interest charges, these are calculated daily and billed quarterly — but only on the amount actually borrowed, not on the total facility. Therefore, if any money borrowed is paid back quickly, the interest payable can be kept to a minimum — again pinpointing the advantages of an overdraft for a business with short-term cash requirements.
Factoring — a more specific service which also helps increase short-term cash resources — is described later in this article.
For the purchase of fixed assets, short-term borrowing can cause unwelcome financial strain on a business. It is often preferable to pay for such things as vehicles and equipment over a period during which they will be generating income.
In such cases a bank can offer medium-term loans for two to seven years. Interest for these loans is normally linked to base rate; but occasionally it can be linked to the London Inter-Bank Offer Rate (LIBOR).
So that the cost of such special purchases or projects can be isolated and repayments, either by instalments or lump sums, fixed to suit the borrower, medium-term loan accounts are handled separately from a company's current account. This also helps the company budget and plan, knowing what its fu ture commitments will be.
Once a medium-term loan facility has been agreed, the money is available to the customer for the whole period, irrespective of any subsequent change in Government regulations on lending.
Where a business has insufficient capital to purchase new vehicles and equipment outright, other forms of finance may prove attractive.
Industrial hire purchase — in principle the same as domestic hire purchase — can often be arranged by a clearing bank through its own subsidiary company specialising in hire purchase facilities. The customer pays the cost plus interest in a series of instalments, usually over three years.
However, not only does the client company become the beneficial owner of the goods, it can also claim tax relief on the interest paid, plus any capital allowance or regional development grants which may be applicable. In addition, the company is free to choose the precise make and mark of the equipment, just as if it were actually buying.