28 corporate finance
Have you read the small print?
The bank wants to withdraw my company’s overdraft. What should I do? Chris Duggan of Griffins takes a closer look
At present it is a common call to receive from a client saying the bank has requested a meeting to review the business’s overdraft facility. Sometimes this is because the facility is coming up to its renewal date or what is happening more recently is that the bank is asking for the meeting because it believes the customer has breached terms of the overdraft facility called covenants.
Does anyone really read the terms of the facility letter that a bank sends you? The answer is mostly no. But contained in this facility letter should be details of specific covenants. These normally are:
• Maximum available overdraft available to you is based upon
your monthly debtor book value, which is discounted by 50% so this can fluctuate monthly and without you realising can reduce your facility.
• The company has to make a certain net profit after tax and dividends. If it does not the facility can be reduce or withdrawn.
• The company must provide monthly management accounts and annual accounts within a specified period of time. Again failure to do this can lead to problems maintaining your facility.
Read any facility letters. Facility letters may also refer to the bank's standard terms and conditions which are enclosed
Manches reports activity in the capital markets
Rich Eldridge, the new head of finance at Manches, reports on the success of the firm’s finance practice
During my first few months at Manches I’m pleased to have seen that, even though the capital markets are tough, debt and equity finance deals are being completed.
On the debt side it has been encouraging to see funding beyond banks refinancing their own loans. This year we have already completed several acquisition financings as well as a development financing.
Our first finance deal this year was one of the most prestigious in the Thames Valley, advising Rebound Technology Group Holdings on the financing for its acquisition of Easby Holdings
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with the funding being provided by HSBC.
It was great to see development finance back when we advised a chemicals company on a £10 million development facility as part of a £27.25m term-loan package. Many developments in the current market are being financed through accumulated cash and ongoing cashflow. It was good to see this development finance follow the traditional model of capitalising 'payment in kind' interest.
It is encouraging to see the variety of debt deals with large, medium and small enterprises across a variety of sectors
THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2012
receiving finance. We advised a bank in connection with a listed borrower obtaining further finance of US$80m and JPY6.6 billion from another lender. We advised an engineering company on an £18m financing. We also advised a food producer on
or on their website so ensure you read these or get your professional adviser to.
If as a business owner you are faced with your facility being withdrawn or reduced, look at the other alternatives:
• Refinancing an asset. At present there are grants available from the regional growth fund which can make this attractive.
• Factoring or invoice discounting which can release cash from your debtor book and help a business grow.
But, above everything else, plan ahead and anticipate a problem and do not let your business be at risk due to uncertainty over its required finance.
If you need any assistance regarding any matters above contact Chris Duggan.
Details: Chris Duggan 0118-9235020
c.duggan@griffins.co.uk www.griffins.co.uk
financing an acquisition using its existing £20m facility and advised a bank on a new £1m financing for a dentist.
On the equity side we have seen a number of financings. These include advising Econic Technologies, a company developing catalysts that enable polycarbonate polyols and polymers to be produced, on its seed funding by Imperial Innovations and Norner Verdandi. We also advised Helveta, a company providing supply chain intelligence software, on its £4m funding by UK and international venture capital investors.
There is market activity. Let’s hope the deals continue.
Detail: Rich Eldridge 0118-9822651
rich.eldridge@manches.com
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