Diversification by Andrew Stewart


There is a commonly used saying that you don’t put all your eggs in one basket. As much as we like a bigger range of customers than fewer, and as much as we prefer a full menu than a set menu, choice empowers us. So when it comes to banking this saying still holds true. It’s all about the power, the power to say yes or no.

Look in your bank security document, which was signed when you last renegotiated your mortgage. Did you notice the general security arrangement clause? This is the one that gives the bank the full right of veto for you seeking any alternate financiers. It’s not uncommon for banks to fence in their customers by tacking on this clause. It prevents them from being free to make choices. It takes away the customers power. Don’t get me wrong, sometimes this is acceptable if there are heightened risks associated with the lend. Just be wary and informed if it’s genuinely required to be given over. Generally in negotiations, the more choices you have, the stronger position you are in.

Let me illustrate. When I borrowed onshore to invest in an offshore factory, I used a different bank than that which looked after the domestic operation. A few years later when trading got difficult, having two suppliers, neither of which had a superior position to the other, gave us considerably more ability to negotiate our way through the rough waters without one or the other exercising malevolent power – in other words being bloody minded. Up until then this was a financing strategy that was always something I heard from the wise old corporate battlers in the big league – not for the small and medium business. However now I understood this is a universal rule.

So now when I am looking after clients, I keep a look out for the bank taking more security than it otherwise needs, pricing too high for the specific lending risk and generally being is a position to throw its weight around. And moreover that the client has building relationships with a range of financiers, because sooner or later we will need that second or third financier connection from which to build and extend the client’s relationship on the next deal. To be sure, the financiers know their turf when they are on strong or weak ground. So having a multi-financier strategy is generally superior to a single.

Take the power back by taking control. Give yourself choices.