Horror stories one can bank on

IF YOU owe your bank pounds 50,000, you have a problem; if you owe it pounds 50m, the bank has a problem. This old axiom is borne out in two new books on banking relationships. One is a practical guide for small businesses; the other looks at the interdependence of multinationals and their banks.

Bill Foster, author of Doing Business with High Street Banks (Penn Publishing), has an axe to grind: he believes his business of 17 years fell victim to a scramble by the banks 'to recover as much of their money as possible, from wherever possible, in order to shore up their rapidly depleting reserves'.

His premise is that a bank manager, despite the smile, is not your friend - he or she is the bank's employee. However much the branch manager may want to help, matters are often dealt with at regional head office. It is essential to understand the bank's operating methods in advance and have the details of its relationship with you spelled out in writing.

The 36-page tract is stuffed full of horror stories. Have you heard the one about the bank manager who became so inebriated after lunch with his client that he spent the afternoon sobering up before going back to the bank? The client was then charged for a five-hour visit when the actual business took one hour.

There are plenty of practical tips. The areas covered include selecting a bank, loans and overdrafts, security and guarantees, charges, insurance and interest rates. Particularly worth noting are cautions over personal guarantees and the position of spouses.

Relationships Between Multinational Enterprises and Banks, by John Holland (Institute of Chartered Accountants in England and Wales), is based on case studies of UK multinationals and leading banks, carried out between 1986 and 1990.

Mr Holland is a lecturer in accounting and finance and his approach is academic, not anecdotal. The first 70 pages are devoted to building a model of relationships. Then the author looks at changes in bank corporate relations through the 1970s and 1980s and how multinationals choose their banks and control the relationships.

He concludes that these relationships are 'an exchange of implicit insurance contracts', of benefit to both parties. Companies are able to reduce their transaction costs in the longer term, because of the lower costs in the initial search for funds, in bargaining, and in the policing of the deal.

Eat your hearts out, small businesses.