Banks are hungry for strong performing bank clients and the pricing that they are willing to offer currently is amazing. But there are some traps that businesses fall into when going after a better deal. The number one problem occurs when you are not attractive enough to warrant other bank interest. Tenders are not for you. This is only the domain of businesses that are performing really well with strong balance sheets.
If you do fit this description then here are 5 points that we assert businesses should consider when running their bank tenders:
1) How do you want your current bank to perform?
Moving banks is annoying, time consuming and distracting. Most businesses only move banks when either there is a material commercial advantage in doing so, or the relationship is simply too toxic to be able to continue partnering together. If you business isn’t in this position, then you need to consider how much chance you want to give you bank to retain your business. Often offering them a right of reply when they haven’t come in the best is worth doing. Your existing bank will understand that there is a price premium that most clients will pay to avoid moving, but this will diminish the more attractive you are and the more committed to are to moving banks if the price is right.
2) Give enough information to get useful offers
Often businesses provide minimal information and then after choosing an alternate lender find the process drags so much that it becomes too hard. Businesses need to be careful of this as the existing bank may well be left drawing a conclusion that no-one else wanted you, and this then causes them to start questioning their own commitment to the relationship.
You need to get the tender response from the banks checked off with their credit departments. The person with the cheque book in the bank needs to be as excited about your business as the relationship manager that you deal with. Only then will their tender response we worth considering.
3) Ask for what you need
Often businesses going after funding don’t really know what they need, and the request of the bank can then become quite meaningless. You must include with your submission a 3 way forecast (ie a forecast that shows what you expect your Profit and Loss to look like, as well as your future balance sheet and cash flow forecast) that shows the loan balances, and the repayments that you plan to make. These days a bank won’t give you an Overdraft account just because you want a rainy day fund available. You need to show that you need the funding that you are requesting. If you don’t do this, the tender responses will all end up being different and you will have a devil of a time trying to compare them all.
4) Use the same inputs to compare the results
Once we have received our tender responses, we like to prepare for our clients a table that runs the same scenario past each response. Whilst the results will be hypothetical, they provide a fair comparison of the responses and allow management to be able to view the key differences in the cost consequences of each response.
5) Be prepared to move banks
You need to understand before the process begins on what basis you will be prepared to move. Will you move to save $1,000, or does it need to be over $10,000 for instance. Also, sometimes it isn’t cost that is your key criteria. You might want a bank that is most diligent in their adherence to your “rules” in the tender – ie responds on time in the correct form, as an indicator of commitment. You might want to select the lender that you enjoy the company of the most. You might want the bank with the best Transaction Account structure, or merchant fees. Regardless of what your selection criteria is, the best results will come to you if the existing bank wants to keep you, but knows you are serious about moving. Everyone works a little harder then to win!
If you would like to discuss your bank tender strategy with an expert, please call. We would be happy to give you some pointers to allow you to deliver a better result, even if you don’t want to use us to assist.