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How do you finance those good people with a new idea, but little product history or operational reference to offer? At present funding structures don’t cater for those businesses.”
Latham: “We have a very robust centralised credit model, and applicants don’t have to have six years or even six months past business history. We have ways of assessing them and if they stack up correctly then there is definitely funding available.”
Goodsell: “There is an equity gap problem up to £750,000 but it’s always been there. Generally it’s filled by family, friends or business angels. The argument from the bankers’ side is that this level is an equity risk, but those seeking the funding have usually already put everything they have into the business.”
Sattar: “The recession has made us more alert about cash and funding. Some in the healthcare sector were getting complacent. The days of five-year NHS block contracts are now over and that also makes the market more vibrant and competitive.”
Virdee said his company’s potential growth was largely through acquisition, but even so access to adequate and timely funding was essential.
Robinson: “Funding is moving back to old- fashioned lending – with bankers needing to understand not only the customer but also the business sector.
Elliott accepted that banks were trying to understand business sectors better, but she exampled a hi-tech client who secured $6m funding by going to America: “There is simply more risk taken in equity from US funds.”
Too many hoops to jump through?
Robinson: “Companies today understand the reasons why banks need extra diligence and within their own businesses they are doing the diligence themselves on their profitability and cashflow etc. People realise that the prime factor today is the ability to repay that debt.”
Davinder Virdee The need for a trusted partner
Preston: “I sense there is a fear of the banks in the SME sector. People are not borrowing because they are mistrustful of what will happen next. They are trying to work without involving the banks, and would rather get angel money. It may be totally irrational, but ‘sit tight’ is what I am hearing from a lot of people.”
Loftus: “It’s ironic because all the UK banks are now as strongly capitalised as they have ever been. There is a bridge required somewhere to get this over to the public and businesses in general.”
Reeves: “Trust is required to retain an open flow of information for any ongoing relationship. Some banks are not the flavour of the month at the moment and it will take time to recover that trust. Equally, we have to demonstrate our trust in the company with which we are seeking to have a business relationship.”
Preston: “Personally, I’m quite happy with Santander but I’ve used other banks and stopped communicating with them because of the fear of what they might do with the information provided. Santander’s attitude and approach has been very different.”
Mike Reeves
Reeves: “We are in the risk game and make our assessment on a variety of aspects – management quality, strategy, sector understanding etc. There are good companies in bad sectors and bad companies in good sectors and you have to make an individual assessment on each proposition. Experience from the banker across the table, not just at the outset but also in an ongoing joint relationship is important too.”
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She suggested many businesses mistrusted banking publicity and relied on personal recommendations and advice from business colleagues. “Building up a relationship that is honest, open and reflecting experience in the real business world is the way that the banking community will build a better trust.”
Loftus: “Banks should be part of your professional supply chain, along with lawyers and accountants, and should be involved within business decision- making.”
Sattar agreed: “Banks should be there as trusted partners to support us.”
Preston: “It’s all about trust and trying to solve a problem jointly rather than being bashed over the head with it.”
Jonathan Coiley
Coiley: “One thing that gets missed in the Press is that people seem to think it’s the banks responsibility to support and bail out SMEs. In reality some SME managements need to remove their air of complacency. It is their responsibility to manage cashflows, their responsibility to talk to suppliers and customers and not let their business run itself, as may well have been possible 5-6 years ago. It is the responsibility of SMEs to actually manage themselves and not to pretend that it is the bank’s problem because they are not funding them.”
Elliott: “We often hear companies saying we need cash, and blaming the banks, when actually they need profitable sales.”
Loftus: “It’s not a lack of funding holding back growth, it’s a lack of confidence – on both sides of the funding fence. There are some great bankers in the Thames Valley who will do their best to help customers, but don’t just turn up with a blank sheet of paper and expect to gain some finance.”
Coiley: “If I’m after finance I consider it up to me to provide the information that will give the bank the confidence to lend to me.”
Murray: “So confidence is restricting growth?” Continued overleaf... THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2011
Murray suggested the lack of local discretion was hampering funding decision-making
Robinson: “I think people are more cautious when they have personal discretion. If you are making the decision, then you carry the can. Nowadays, we still do the same analysis and due diligence, and we don’t put things up to credit that we know will be declined. Experience and relationships at local level still remain very good. So, I am not sure not having discretion at local level is holding back overall bank lending.”
Plan to take responsibility for your own future
Goodsell: “A lot more businesses do understand the need to plan. A few years ago businesses would only do a plan and forecast when they needed funding. Now they do it as a matter of course to steer the business. Owner managed businesses now use business planning as a natural tool, and that’s largely as a result of recessionary refocusing.”
Elliott: “We do see a number of businesses that are far from investible and part of our work is often to help management teams understand their true responsibilities, and the need to create the right foundations for financial and operational management.” Fully understanding the implications of finance, resourcing, efficient operations, and the need for strategic planning is vital. “It’s no good coming to funders and saying I need cash next month to pay the wages bill; forward planning is absolutely critical.”
Robinson added that experienced bankers not only helped with funding aspects. “We can also act in an advisory role as a business partner and that is beginning to happen more as a natural extension of our relationships. “
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