Whip your clients into shape for lenders
Banks must become more robust lenders, so advisors must help clients present a convincing view of their health
THE FIRST PIECE of advice I’d give any advisor thinking about how their clients can gain access to finance is straightforward: there is no merit in “bashing the banks” and bemoaning the way things are.
Speculative lending and over-competitive pricing got the banking sector in trouble in the first place, so let us not pretend that they were the good old days!
Before jumping in to establish a solution, a full review of profitability, the working capital cycle, internal controls and cash flow should be completed.
It is very easy to produce a quick and dirty set of projections that show a loss-making business, moving into profit and generating lots of cash. This leads more often than not to dismay when the application is declined.
I would find it difficult justifying a fee for this type of work. The contrast between a well researched, robustly challenged set of projections is pronounced; it addresses the real issue of whether or not the business has a viable future. Moreover, it will lead the client and their advisors to be realistic about what they are trying to achieve. Banks are more robust in their challenges and the advisory community must adapt its behaviour to take account of this.
Upon completion of the financial projections, a realistic assessment of risk needs to be undertaken. Banks are looking to mitigate risk wherever possible and are more receptive to proposals that consider risk in a balanced way.
One further note of caution: if directors are not prepared to support the business through the provision of security then the bank is hardly likely to feel confident. Directors need to consider what would happen if problems arise and the banks need to be convinced that there is a “second way out” if the business performs below business plan levels.
It is vital that advisors consider whether the proposal represents a “bankable” proposal at all or if private equity is more relevant when taking into consideration all of the risk elements and plans for growth.
It’s important also that advisors do not stop at the high street when seeking funding. There are a number of good quality niche players becoming involved in deals that the high street banks are no longer keen on: this doesn’t necessarily make them bad deals.
Be open-minded and prepared to amend funding structures outside the traditional loan and overdraft. Often this makes life more difficult in terms of financial modelling but that shouldn’t be a barrier in generating the right outcome for your client.
Richard McNeilly is business development partner at Dains, a UK200Group member