In most family-owned businesses the bank is an extremely important business partner.  Quite often the bank will be the second largest source of finance (after the family).

So the management of the relationship with the bank is often an important part of the success. And the time to manage the bank relationship is when the business is operating well financially.

The options a family business has with a bank decrease as the health of the business falls.  And if the business starts to underperform the bank will tend to have a consensual strategy for turnaround. Ultimately the bank will then attempt to influence change in the family business and then the attitude to the family business will become coercive.

The bank’s assessment of a family business can be seen in the classical “5C’s of credit”

  • Capacity
  • Capital
  • Collateral
  • Conditions
  • Character

The first four items of the bank are classical in that it is what you would expect.


The financial performance of the business. If the business is making more money it will have a greater ability to service borrowings from the bank.

If a business has a strong history of repaying its debts it can also show capacity to manage its obligations.


If the business debt is low relative to the business assets: the business has a greater ability to withstand a reduction in capital and continue to have net assets.


If the business has assets to pledge as security (like real estate) the bank has a tangible asset that they can recover.


The removal or inclusion of certain bank covenants will alter the bank’s risk profile of a loan application considerably.


The character of the borrower is rated as the most important factor in the bank’s risk rating of a loan application. And it is often the case where we see (poor) brokers miss in the loan application.

These are some of the ways to show your bank a strong character to support your loan application:

  • Up-to-date financial statements

A business that has accurate and current financial statements is typically seen as being in control of their money more-so than an applicant who is struggling to produce tax numbers many months after the year has ended.

  • Business plan

If a family business has documented a sound strategy for future growth and documented their competitive strengths through a business plan they will be seen as a better lending prospect.

  • External advisors

If a business operates a board with outside advisors the family business, or the family office, can show a commitment to taking advice and working “on the business” rather than “in the business”.

  • Forecasts

If the business has a history of preparing forecasts for the business, that are met, the bank has much greater confidence in relying on the presentation of current forecasts.

  • Knowledge and experience

The qualifications and experience the family owners have in the business give a bank a lot more confidence about the loan applications.

  • Succession planning

A documented succession plan as part of the loan application will give the bank a lot more certainty about the business operation.

  • Reputation

The banks will not lend to some people regardless of their credit worthiness.  Further, if a person has a history of questionable dealings, or not maintaining commitments, the bank is less likely to want to lend to that family business.

The key takeaway

The lender should be seen as a business partner. And the long term success will be giving the bank no surprises. The information flow should be ongoing and upfront.

If you are looking to change banks the broker should be given information that supports and shows the character of the borrower – business plans, forecasts, succession plans, board minutes and the documentation of sound governance.

It is at this level that a great accountant can make a difference. The governance of a business, and demonstration that a business is financially focussed on future events – through forecasts, advisory boards, minutes, succession plans and real-time financial data is a key platform that Westcourt provide to make family-owned businesses great.

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