Banks – better to love them, than hate them….

After grumbling about the under performance of various employees, many family business owners, often grumble with me about banks. Some grumbling may be justified, especially with regards some fees that seem unjustified. However many family business owners speak to me nostalgically about the days when getting an overdraft or a bank loan was an easy affair, settled over a call or brief meeting, based on the relationship forged between the bank and the corporate client over a number of years.

Banking & financial services regulation, that developed after the financial meltdown of 2008/9 changed all this. With stricter rules on risk management, banks needed to step up and hence assess any risk with a finer comb. This means that unless you have your house in order, approaching any bank to gain financing, is almost a futile exercise. What do I mean by your house in order? Well, basically the basics – that your financial reporting is up to date, that your internal control systems are up to scratch, that you can provide valuable and solid financial forecasts, that all your tax dues are paid in time, that you can provide the bank with audited financial statements well in time. These are just the basics. Many family business owners, fail to get the basics right and then grumble that banks are being “difficult”. When I hear this I smile, whilst crying inside me. In essence family business owners should thank banks as indirectly they are helping family businesses shape up.

However, going forward these basics will not be enough. The game will be upped in the very near future. Banks are being pushed to abide by Environmental, Social and Governance standards. This will mean that banks will need to report the Environmental Social and Governance status of their corporate or business customers. Basically banks will have to show that their lending practices support companies with good records with regards environmental sustainability, social aspects and governance. Banks will therefore need to prove that they’re loosening ties with business clients that are poor ESG performers.

As they say the writing is on the wall. Banks will eventually start asking their business clients to report on the following:-

Environment : Data on carbon footprint, resource usage and wastage, contribution towards the circular economy. Banks would want to see that a constant improvement is being registered in these areas.

Social: Data on fair remuneration, working conditions, gender equality and training & development

Governance: Data on governance structures, governance mindsets, tax abidance, board composition & diversity, policies on business ethics, risk management and internal control systems.

This will eventually mean that those businesses that will not step up, to be able to report effectively on the above, will possibly find their businesses as being unbankable and thus cannot rely on bank financing.

It is with all this in mind that at EMCS we have worked hard to develop the holistic Business Reality Check service. The ultimate aim of such a service is to help family businesses and SMEs adapt to the changing environment where reporting on sustainability matters, social matters, financial matters and governance matters will be a core necessity. The time to prepare for all this is NOW. Click HERE to review what the Business Reality Check is made of.

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