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Dublin: 3 °C Tuesday 18 February, 2020

Column: Don’t know how to deal with banks? Get to know the code

Many SME owners feel powerless in the face of banks, writes George Mordaunt, but if they educate themselves with the revised code of conduct they might find the breathing space they need.

George Mordaunt

IT WAS BIOCHEMIST Isaac Asimov who once said “Self-education is, I firmly believe, the only kind of education there is.” This has never been more relevant in the corporate Ireland of today.

Notwithstanding the beating that the SME sector has taken and while fully appreciating the enormity of the challenges ahead, most people in business feel they could meet that challenge head-on if it were not for the constant pressure and difficulties presented by their banks. Irrespective of the economic outlook, business people all over Ireland have just not been able to re-establish the relationship with their bank that once existed. The truth is that such expectations are now just totally unrealistic.

We must ask who educated us on how to communicate with our banks from day one? Who showed us how to apply for a loan and renegotiate facilities? Who educated us on how to excel with confidence in the eyes of the bank? The answer is nobody.

To borrow from or to appease banks seemed effortless pre-2007. We now find ourselves in uncharted waters trying to communicate with what are effectively hostile creditors. It’s not working for either party and the failure is destroying retail. It is causing financial ruin for many families all over Ireland.

Most SME operators do not know where to seek help

Despite this awful dilemma very few self-employed people have tried to educate or equip themselves. In fact they have failed even to fully understand their rights. Most SME operators do not know where to seek help. There is no guide, there is no class and there is no benchmark.

Few know that not only was a code of conduct introduced by the Central Bank in 2009 to protect struggling SMEs but that the very piece of legislation was revised in 2011to take account of continued banking difficulties. The revised Code of Conduct came into effect on 1 January 2012.

The protection that it offers is a matter of law. Its core objectives are:

  1. to provide access credit for sustainable prospects;
  2. to promote fairness and transparency;
  3. to assist when dealing with financial or difficult cases with the aim being to assist borrowers to meet their obligations.

From overdrafts, to leasing, to invoice discounting to loans, banks must clearly demonstrate that they will comply with the code. Interestingly a borrower is not deemed to be a problem case until the borrower falls three  months into arrears or where an overdraft remains overstretched or hardcore for 90 consecutive days. To understand the code, to perfect it in your mind with the intention of putting it at the top of your agenda for your next bank meeting, will not only put you or your company firmly in the driving seat but actually allow you to gain significant breathing space in your negotiations.

Under the code, you can even advise your bank how often you can be contacted in a month

It’s quite a stunning thought to believe that you can decide almost on a course of action to resolve your financial difficulties. You choose the strategy, you choose the repayment and you can even advise the bank that you cannot be contacted more than XX times monthly. This of course is on the basis that you are also acting and negotiating in an honest and transparent manner.

It’s possibly the best armour for a struggling borrower. However the harsh reality is that many business people simply are not aware of its existence and if they are they have not taken time to educate themselves. Irish mentality in most cases remains the same. This is no preparation, no strategy and no knowledge. It is walking into a bank meeting, not understanding that banking procedure has changed forever.

Why risk such an environment without the facts, without protection and without any self-education? Isn’t it time that the SME community understood that neither the government, banks, economy nor Europe is going to save their business?

In fact, the only road map to survival is one of active participation that is you. You must be an active participant in your own rescue. You must prepare, you must have a strategy, you must be tactical and now more than ever you must be fully educated on your rights, your entitlements and your protection. It’s never too late. Start now by understanding the Code of Conduct 2012 by the Financial Regulator on business lending by regulated entities.

For some businesses it will be the difference between life and death.

The full Code of Conduct for Business Lending to Small and Medium Enterprises is here>

George Mordaunt is the author of Shepherd’s Pie: Family Business, Recession and Recovery – The Real Story, published by Mercier Press, €16.99 in bookshops nationwide. He is Managing Director of the Mordaunt Group, a family business based in Clonmel, Co Tipperary and an advocate for SMEs.

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George Mordaunt

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