Time To Change Banks?

October 17, 2012, 3:05 pm Michelle Hutchison Yahoo!7

Is your lender listening to the Reserve Bank? If not, it could be time to make a switch...

Time To Change Banks?

Tired of your bank? There's an odds-on chance that you've had a gut-full according to recent research from Roy Morgan.

The report found business clients to be far less satisfied with their banks than personal clients – 14 percentage points less, in fact.

The biggest gripe was that banks did a poor job of meeting their complex and "potentially riskier" needs. Yet, it seems a lot of small business owners put switching banks in the "too-hard basket", deterred by the admin involved in refinancing, according to the study.

But there is something you can do about it.

First, before you think about switching lenders, see what the absolute rate and fees are compared to others. A simple way to do this is to look to the "comparison rate", which will help you to compare apples with apples.

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Second, look at and talk to some alternatives. The cash costs of switching include things like application fees and valuation fees. Of course there are non-cash costs – the time it takes to look for, negotiate and complete a loan application isn't trivial.

Third, talk to your lender about your options – you may be surprised at how willing they are to negotiate rates to keep your business.

Finally, if you're lender isn't willing to shave a few basis points off your current loan rate, then do the math on switching costs and take your business down the street – the savings could run into the tens of thousands of dollars!

Simplify the application process

While filling in the loan application may be relatively straight forward, there are a number of other variables that will determine whether or not you're successful in your application, so here are my 4 top tips to get you prepared and help you across the line.

1. Know what you're worth

Whether you're a growing firm with a stable of staff and equipment, or a smaller start-up with just a few assets, it's important to be honest about the value of your business – your accountant will help you determine a dollar value for your business.

2. Don't sell yourself short

A business loan is more likely to be approved if you can show that you have a clear direction for your company and can communicate that in a written, logical manner. Your business plan should outline your profit and loss and cash flow forecasts to reflect your future plans.

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3. Demonstrate an exit strategy

A lender will want to know how soon they will be repaid, also known as an exit strategy, and you'd be wise to offer more than one way out of debt. The first should be the traditional repayment schedule of principal and interest, while a second option may include sale of the business or assets, for instance.

4. Devil in the detail

Understand that the minor details are often most important when you're asking a lender to hand over money – so keeping paperwork up to date and responding to queries promptly can go a long way in your favour.

At the very least, it's a great way to give your business a financial health check!

Rate City spokesperson Michelle Hutchison has joined the KBB contributors team and will be bringing you fortnightly news and insights on how to save your business time and money, so keep an eye out!