A Bank's View

Warning Signs from a Banks perspective - what will your bank look for?

All of the signs on the warning signs page and these additional areas will be looked at by your bank.

Overdraft

Constantly at limit – this is called ceiling borrowing. This could mean that the business has simply outgrown its facilities or that it is possibly insolvent. Discuss always being at your overdraft in the context of "What facilities do we need?" AND Am I insolvent?

Trend borrowing analysis - what does your borrowing trend show? The bank will look hard at a cycle of events. If the trend is constantly upwards (in terms of money they have lent to you) then there may be a more fundamental problem looming.

Returned cheques - if you have written cheques when insufficient funds are available this is a clear sign of insolvency and is also a breach of your contract with the bank. Think very hard before writing cheques in advance of funds becoming available.

Other Warning Signs for the bank?

• Poor management information flow
• Always asking for new facilities
• Monthly management accounts delayed
• Cannot produce forecasts
• Security of exposure – charges is it enough security?
• Commitment are the key people financially and holistically committed? In other words what human and financial capital do they have in the business?
• Professional advice taken where required?
• Spirit of co-operation with the bank
• Do you miss bank meetings?
• Banks also examine the following for Risk Analysis
  Lost contracts
  Bad debts
  Refinancing of assets
  Contractual disputes
  Insurance Cover
  Systems