How to get the best deal from your bank - and when to say "enough is enough"

When the handbrake came off at MG Rover back in 2005 Trevor Stead, MD of one of its family-run dealerships, turned to his bank to pull him clear. He was disappointed: “The loyalty we felt we had shown over many years evaporated; in fact we, along with a number of other MG dealerships, were put in a high-risk category.”

Ecclesfield-based Eric Stead Garages was established in 1956 by Trevor’s father but it now faced a bleak future. The forecourt price of its cars almost halved overnight while Stead, like other dealers, was locked into paying full price, and it got worse: “We were absolutely liable for everything, even the warrantees offered by MG Rover.”

But, instead of helping Stead plot an escape route, he felt his bank was protecting its investment – whatever the cost. He says, “We always had an overdraft we didn’t use, but when we needed help to use that facility and extend it, the understanding wasn’t there. We were having to send cashflow forecasts every day; we were
under severe pressure from them.”

But, somewhat unexpectedly, a lifeline came from another bank: only Barclays subsidiary Barclaycard Credit would offer his customers full finance on the devalued motors he had in stock.

He asked if they could offer him a finance package too and, within months, he was enjoying better, cheaper banking. “We moved to a new bank which did not know as much about us as our previous bank and yet got an increase in our overdraft facility at a lower rate and with less security,” he continues.

So, although such cataclysmic events can shatter the business landscape they also provide an opportunity for those banks with vision. For example, in the mid 1990s Esso slashed fuel prices overnight as part of its marketing strategy, leaving the entire sector in turmoil. Bayford and Co, the Wetherby-based fuel delivery business, knew its bank (also Barclays) would pose it some serious questions.

The strategy of managing director Jonathan Turner was to set out a long-term expansion plan and be honest. He says this (along with his enthusiasm) kept the bank on board: “You never take no for an answer if you believe what you are doing is right.”

Now all parties are reaping the rewards. Bayford is one of the UK’s largest independent distributors, supplying more than 35,000 homes and businesses across northern England and Wales. Turnover has rocketed from £191 million in 2004 to an estimated £500 million and the company is driving a three year plan to post £10 million in profits by 2010.

Turner says, “When we did the management buy-out at Bayford it was quite challenging, especially with the emotion involved, but the way Barclays handled it was very impressive and since then we have been buying other businesses through that relationship.

“We entrepreneurs are known for being ambitious and taking risks that others would not, and so to be in partnership with someone whose whole raison d’être is the opposite can be a challenge.”

That’s why Sheffield-based entrepreneur Martin Spence doesn’t like to get too close. “I think it is a waste of time integrating a bank into your business,” he says. “They are not partners – they are facilitators. They don’t make strategic decisions but they need to be aware of your business plan and that needs to be set out as early as possible.”

It was a lesson he learned the hard way 15 years ago: “We ran out of money thinking we had facilities in place that were flexible, but in the end we had to go back to our own resources.”

Spence is now chief executive at online sports portal Xoolon, which champions sport among young people. It was launched in September and currently has a £70,000 turnover.

He advises new businesses to find out the banking latitude they can expect straight away: “You have to establish those ground rules early on. If you can’t demonstrate yours is a flexible business I don’t think they will support it – they don’t like surprises.”

But Martin Worner, managing director of the thecitysecret, whose Richmond-based company provides bespoke software to investment banks and financial institutions, found most of those rules set in stone.

For example, his suggestion to a succession of banks that his start-up liability be placed against a share holding and not his home was refused by all, so he was forced to do things their way. “It was maddening. Retail banks are innately conservative,” he complains.

Nevertheless he was able to win some early concessions: “You can negotiate quite hard on charges. Don’t just accept one year’s free banking, we got two years by saying we would walk.

“It is important to instil the idea in the bank that you have great potential and you are not one of the majority of young businesses that fail.”

It’s all about attitude – no matter how big the numbers. And Turner says it is the people around the table who make deals work. He says, “Money is irrelevant: I can get that from anywhere, but networking is important and we don’t do boring. If the bank ever sends anyone who we don’t get on with we will let them know. We look for creativity.”

That’s because he recognises the bank staff he deals with are advocates for his business: “The bank won’t let us meet their credit committee: the faceless people who sit behind spreadsheets. But I love them – because of the bank’s personnel who communicate with them for me!

“They’re the ones who say, ‘Even though this plan looks a bit rich, let’s go with it because I know this guy, I know his team and they are doing a good job.’”

It was a similar story at Leedsbased Directorbank, the executive and non-executive recruitment business. Last year, now-chief executive Elizabeth Jackson led a secondary buyout with the help of Yorkshire Bank.

She says, “I think there are two sorts of banks: there are those who look for financial comfort from a proven business model, and there is another sort who just get it – get your unique selling point and are prepared to set aside the risk if the management can capture their imagination.”

Andrew Stoddart, managing director at Above and Beyond Architecture, agrees that personal relationships must play a part in a successful banking relationship. His Huddersfield-based company was established in 1999 and has a turnover of just under £1 million. He says his dealings with its first bank were holed when a relationship.

manager moved on and was never replaced: “They [the bank] became complacent. We were receiving very little more than you would as a personal customer – we did not have a banking review for 18 months.”

Above and Beyond switched to Yorkshire Bank three years ago after interviewing a series of prospective suitors, and he now gets regular meetings with a business manager who can quickly allocate £1 million if needed. Stoddart says, “He can make things happen for us without going through layers of approval, he has decision-making capabilities and that is the important aspect when compared with our previous bank; it allows us to take advantage of opportunities.”

Stoddart’s relationship with Yorkshire Bank was tested earlier this year. His company had secured £700,000 from it to move to new premises, but the deal went sour because building specifications weren’t met, he explains: “To ring up the bank, tell them we were moving to litigation to recover our initial funds and that they had lost that business was a bit of a blow for them.

“But they took it on the chin and instead of looking at what they were going to lose they said if it was the right decision for the business they would support us.”

Stoddart’s banking team clearly understood his business, something Stead says his relationship manager failed to do at the height of his forecourt troubles: “His first advice was not to send out cheques! That would have destroyed the relationships we had built up. It was bad advice; it was him not understanding me or our business.”

Specifically, the relationship manager failed to understand the company’s traditional family nature, so Stead ignored him and used personal funds to keep the business going just as his father, who died 17 years ago, might have done: “The easiest thing in the world would have been closing the doors and walking away but that would have meant the business failing.

“Since the business is called Eric Stead the throwback from that was that Eric Stead had failed, and he never did.”

Stead says the MG Rover episode shook them out of their comfort zone and put them back in full control of the family business: “We have had to learn fairly late, drag ourselves into the 21st Century and become more and more aware financially.”

But far from losing faith in the banking industry, Trevor Stead is philosophical about what happened and says the episode proved to him that even when business is at its lowest ebb not all banks react the same way. “There is always somebody who is prepared to help,” he says.

---