Accessing finance has clearly moved away from conditions seen at the height of the credit boom last decade in which foreign banks in particular were flooding the market with offers of debt and companies were leveraging to the hilt.
Rather we are now much more in a period of relationship banking where having your lender with you every step of the way is key. Getting your lender onside and helping them to understand your business inside out is absolutely essential.
How do you do this? It’s simple really – it’s all about communication, a point I cannot over- emphasise.
Each business is examined on its own merits so talking to your lender is imperative. There are a number of key things that you should bear in mind when approaching your lender to talk about funding options:
1) Have a solid, clear and well-presented business plan
Take a short and long term view – what’s the 18 month outlook? This will highlight your business’ imminent needs and commercial aspirations, which is essential for understanding the sort of working capital requirements, or investment needs you might have.
In turn this will impact the range of funding (structure) or operational solution discussions that will be most appropriate for the business.
Your longer term focus should look much further ahead; the 5-25 year picture. This will help lenders gain a better appreciation of your vision and consequently how they can help support you to realise this.
2) Sit back and take stock
Is a specific form of funding really right for your business? Pubcos and restaurants for example could have very different funding requirements dependent on lots of factors and the management plans - be that intrinsic growth, consolidation or acquisition.
The business dynamics in this sector mean that many businesses will want a bespoke model according to their own circumstances; it will certainly not be a case of “one size fits all”.
Market knowledge on both sides is also vital in terms of agreeing a funding strategy.
Many smaller businesses may find that government schemes such as the Enterprise Finance Guarantee could be a viable option while larger organisations may look to access funding available through debt capital markets such as US private placements, rather than a straight loan.
Your lender should be able to run through the many possibilities that may be right for your company and give some insight into other options that might be worthy of consideration.
Can you comfortably afford the financing repayments and where will the repayments come from? Think about various projection scenarios and how you would meet repayments in each case.
Your lender must be convinced that your company is a solid and viable business to fund and that the terms and conditions can be met on a go-forward basis; cash and not profit will be a key focus.
4) Industry insight
In your lending pitch, paint the complete picture – not just of your business but of the industry and how it sits within it.
For example, if your business is going from strength to strength, but there are challenges within the wider industry, you need to show that you’re aware of this and how the business will be able to mitigate these issues.
Understanding your staff dynamics is vitally important too, whilst the hospitality sector will inevitably have a higher workforce turnover than other sectors, staff loyalty always adds to the brand, be that local or national.
It’s all about communication. Having open and honest conversations with your lender gives them a vital insight into your business, and therefore puts them in the best possible position to make and shape the right range of options for your company.
Funding is available, and it is a case of making that reasoned and compelling case to the banking partner and investing the time to put your case and plans across.