Responding to those "left field" events: coping with a bank that becomes a bit "difficult"

In these testing economic times, all business types, including law firms, can find that relations with their bankers suddenly become less cordial than they were previously. It is extremely important to understand quickly why this has happened and what action needs to be taken.

Is it them or us?

Ensure that a senior delegation from the firm meets with a sufficiently senior delegation from the bank, to have a frank and open discussion on why things appear to have changed adversely. Some signs perceived as indicating a worsening relationship may be a simple misunderstanding about why the bank has asked for something or changed some of its business terms. Get to the bottom of this straightaway, and also find out if the problem is actually with the firm – this might come as a surprise to you, but coming to terms with this conclusion is imperative for the healing process to begin.

What if we are the problem?

If a bank becomes worried about their risk on your business, the chances are that you too should be worried. Provided their analysis of the situation is accurate (challenge if necessary before accepting), you should probably view their changed behaviour as a valuable early warning signal. Show empathy with their views and start to agree a plan for change – they will have been through this before and may have some helpful pointers.

What if the bank is the problem?

Consider whether a change in your bank relationship manager would be beneficial or if it is worthwhile investing in some relationship-building time with the bank. If the issue is about a decision not to renew or provide a new facility, consider whether the BBA’s business review scheme, providing for appeal to another decision maker within the bank, is appropriate.

The last resort option is to investigate changing banks. This needs to be considered with caution: longstanding relationships, even with a recent blip, are often easier to operate than a completely new one, and there is a significant risk that any new lender will have similar risk/reward views to the previous one. But in the case of an extreme relationship breakdown, both sides may actually be quite keen to part company, and a fresh start might be best for all.

The Author
Neil Forrest provides strategy and funding advice to the legal sector and other business groups. t: 0131 440 45118 e: nrf@neilforrest.co.uk  
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