Business banks: are they all the same?
Christopher Jenkins of Wingrave Yeats on switching banks
When it comes to business banking, the secret, usually missing, ingredient is a ‘relationship’.
Banks all contain within them the right person with the right level of expertise and understanding to fit you and your business. The key is to know how to find the right bank manager.
Different banks have different strengths and sometimes widely varying outlooks, but if you stick to your guns you’ll find the right manager. Don’t forget you are the buyer here and have the right to switch banks or sectors within your bank. You wouldn’t hesitate to change stationery suppliers if they let you down, so take the same attitude with your banker.
The big four – Barclays, HSBC, Lloyds/TSB, RBS/NatWest – are usually divided up into three main groupings based on turnover:
Sub-£1m turnover ‘commodity’ or ‘high street’ banking for small and start-up businesses. Customer numbers, handled by one relationship manager, tend to be high at around 200-plus and no distinction is made by sector. Take a look at our comparison on what banks offer start-up businesses.
Medium-sized businesses, usually owner-managed with turnover of between £1m and £10m to £15m. Managers’ portfolios tend to be between 75 and 125. At this level, efforts to promote relationship banking and the focus of specialist industry knowledge begin to show. The larger teams in the big four are therefore sector driven. Certainly Barclays’ website makes more of a play on specialisms in their £1m to £10m sector offering than the other three. However, at this level, managers with a general all round knowledge of growing businesses can be just as valuable to you.
Large accounts with turnover of £15m-plus, although HSBC tends to have a higher minimum of £25m. You may be surprised to hear that these teams have exceptional sector knowledge. These guys are bright, backed with sector-specific research and have access to powerful databases. Managers will often know more about the latest deals going down in your sector than you do and are often the first to know about them. They tend to deal with much smaller customer portfolios (10 to 30), so the time they can devote to you is markedly different.
Private banking has also begun to show itself recently as a readily identifiable sector. For example HSBC Private Banking (formerly HSBC Republic) takes on entrepreneurs with a track record who can bring with them all their associated businesses. The other smaller ‘private’ banks such as Coutts, Adam & Co and Drummonds offer great service but, of course, at a higher cost. Don’t forget that each of these three are owned by RBS/NatWest. Both Yorkshire and Clydesdale are part of the National Australia Bank. Hoare & Co is one of the very few truly independent UK banks.
Which banks are the best in terms of cost?
Business banking is now becoming a very competitive and transparent marketplace. None of the major banks has a ‘reputation’ for hidden charges. Of course, the banks make mistakes, but what you may read in the press about overcharging is generally ‘sensationalist’ journalism or advertorial sponsored by owners of software that claim to be able to discover lost millions on your statements just by paying £25 (and a percentage of the savings gained) to run their package against your statements.
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Beware of offers of ‘free banking’. If cost is the only criterion you judge a bank by then don’t expect to get the service levels you would expect from a more tailored service. Banks, like any business, are out there to make a profit. When assessing costs, look at the total package before you commit. There is no point in going for an overdraft rate cheaper by 0.5% if you are charged a set up fee of 1% and then an annual charge on top of that.
Banks do vary in their charging, primarily because of different attitudes to risk and over or under-exposure to certain business sectors or stages of a business (start-ups etc). Banks are now much more intelligent about understanding the make up of their portfolios.
Which banks are known for service?
All banks are capable of great service and all of them are guilty of giving bad service. They all now have excellent systems but are no different to any other large organisation where the quality of the offering tends to come down to the drive and enthusiasm of the individual manager. All the banks have adopted the sales line that ‘banking is all about relationships’. The trouble is that managers either have that personal quality or they don’t.
The problem of managers being moved on to a new role just when you have begun to develop a decent working relationship is thankfully now receding. However, the problem now is that good managers are much more likely to be head-hunted by a competitor. Clydesdale and Bank of Ireland have been very successful in doing this. As a result, there has been a fusion of cultures and practice between banks. Perhaps the answer is to follow your manager around.
All the banks will have individual managers with a good understanding of entrepreneurial businesses or the ability to call on others with specialist knowledge of your business. If you haven’t found the right manager for your business then ask your adviser to talk to someone higher up in the bank to see if you can be moved to a different team. It’s often difficult to handle this process without the intervention of a third party.
What to look for from business banking
If it is willingness to lend then much of it is down to the quality of your presentation and the strength of your business model and management team. If you are with the right banker then the chances are that anything more than they are prepared to lend would be foolish to accept. Lending appetites vary from one year to another and are driven by a bank’s current risk profile as a result of over or underexposure in a particular business sector. Managers’ individual authority levels also change markedly between banks, internal departments and branches.
Is it speed of decision making? Smaller banks such as Allied Irish (AIB) will inevitably have a closer command structure and therefore a quicker decision-making process but then again they may not be able to provide the global range of services that a bank such as HSBC can command.
Is it specialist knowledge? The banks do in fact run an annual competition for the best business bank, which Allied Irish has won for the last five years in a row. Others are seen to have a stronger offering in certain niche areas and Barclays Bank Soho Square, as you might guess from its location, is undoubtedly known for its concentration on media business. HSBC does indeed live up to its claim to be the world’s local bank and through its historical connections has undoubted expertise in trade finance. AIB is historically very well known for its licensed premises business and both the Irish banks like property-based lending. Each of the banks’ websites extol their separate virtues, so do spend time visiting them.
Do you want a banker that really understands growing businesses? Banks will invest time in growing businesses that show promise. However, some banks will not take a business into their commercial sector where it would get the attention it deserves, until it meets the size criterion – even if it shows promise. Nevertheless it’s still worth talking to the commercial managers who can often ‘shadow’ your progress in retail and then accept you once you are big enough. RBS is in the process of launching a ‘nursery’ for growing businesses to get round the size criterion, although it is too early to judge how it is working.
Beware of offers designed to lure you to a new bank if those promises of service are not core values that the bank will continue to uphold in the long term. Judge them by the people it puts in front of you. Remember also that your first point of contact will be with the marketing people who will not be the ones providing the service. If the answer to good banking is to find the right chemistry with the right individual, insist on meeting the relationship manager with whom you will be working before you decide to move.
The answer is to talk to a good advisor. If you find it daunting to interview every bank and each sector within it, then do the sensible thing and ask someone who knows the answers already. Be wary of just taking the referral of a good friend unless they know what they are talking about.
1) Treat banks like any other key supplier. Never forget you are the buyer and they will be keen to get your business.
2) Talk to your bank openly. Keep them in a constant dialogue, don?t just see them when you need something from them. Give them good news and high-quality financials regularly.
3) Understand how banking works ? banks do not take risks, they just retail money. They don?t share in your profits, so why should they share your losses if you fail to repay them?
4) Look to move within the bank first before switching if you are unhappy with your bank.
5) Ask your advisers to help you with the process.
6) Meet the relationship manager rather than just listening to the marketing team.