“Should I be worried about my bank?”

Understanding Banks

Banks are generally willing to help companies in financial difficulty, but their primary concern, in order of priority, is:
1.    their loan/ overdraft is secured;
2.    that interest is paid on time;
3.    that loan principle is being repaid as agreed or plans for its repayment will be met on time.

So these are their primary considerations when advancing any funds to a business and they are constantly reviewed if it is in difficulty.  They will normally lend money against a the company’s own assets by taking a fixed charge or a debenture (a fixed and floating charge) but they sometimes ask for personal guarantees and collateral security from the directors or shareholders if the company doesn’t have sufficient assets to pledge.

When a business is in financial difficulties a bank might be willing to advance new or further funds if the security is available and if it believes in the directors and the business which normally requires a plan. However, if the bank is already exposed with existing loans and overdrafts and it is concerned about security, which may have reduced, it will be looking to either increase security or reduce exposure by withdrawing loans or overdrafts facilities.

When a bank loan is exposed it is normal for the bank to charge additional management and monitoring fees and to provide for the exposure on its own balance sheet and pass on the impairment charges to the company for the cost of treating it as a bad debt.

Feel free to call K2 for help dealing with your bank or read some of our literature in the Resources section