or how a family business persuaded their bank to change its mind.
Raj has run his pharmacy for 20 years and, apart from one year when he invested in an unrelated business venture that failed, the company is consistently profitable.
He also rents out two shops nearby that produce enough income to service the bank loan taken out years earlier to buy the freeholds, which now are worth £800,000 – double the outstanding loan.
Raj’s son was keen to take over the day to day running of the pharmacy so Raj planned to buy another freehold shop to convert into his second pharmacy. He had £140,000 cash to offer as a deposit and so he approached his bank, one of the ‘big four’, for a mortgage.
Despite his track record in building up and running a successful pharmacy, the high net worth of the business, a bank account always in credit, excellent profits, strong cash flow forecasts, coupled to a substantial cash deposit, they said “no, you’re gearing is too high” ( their other favourite get out clause is ‘you’re overtrading’ ).
I introduced Raj to one of the ‘challenger’ banks who are keen for business and they quickly offered him a mortgage. And if he would transfer his business banking to them, they would also take on his existing bank loans.
An application for ‘Crowd funding’ produced an unsecured loan of £150,000 which, added to the new mortgage offer and his cash deposit, covered the purchase price and associated costs.
Armed with this funding package, Raj told his bank manager that he was going ahead with the shop purchase and would be transferring his account to do so.
There’s a surprise! Suddenly the risk rating of Raj’s business from being too highly geared was no longer an issue. Losing the profits the bank make from their existing loans to him certainly was. A mortgage offer was on the table within days!
The interest rate was a point or two lower than that from the challenger bank, so Raj took it to make the purchase but, once the new pharmacy is trading well, he plans to move all his accounts and loans to the bank that provided him with a responsive and welcoming service.
As we all know, but many banks don’t, it takes a lot of effort to win and retain customers, but not much to lose them.