If you’re getting on with building your business, you may be contemplating the age-old conundrum of how you fund that growth. And you will have heard the stories of how hard it has become to get the bank across the line for funding right now.
So, I thought you might appreciate our perspective – what are we seeing post Royal Commission?
- Banks are still telling their front-line staff “we’re open for business”
- Banks have not reduced the sales targets for their front-line staff – targets to which their bonuses are pegged
- However, there is a huge disconnect between what was a deal yesterday and what is a deal today – the application process is far more rigorous and the requirement for information to support that process is far more onerous. Deals are taking longer to be assessed and ultimately, processed. More deals are being rejected than before. They are very risk averse (don’t get me started talking about the construct of an interest rate – the risk-free rate plus a risk premium).
- Specialist divisions such as Agribusiness seem less affected by the changes – it could be that the credit departments see their agribusiness teams as the experts in their space and are less likely to second-guess them.
- Business bankers are becoming frustrated that they can’t write deals, can’t hit their sales targets and therefore can’t earn their bonuses.
- Business bankers are desperate not to lose your business – if they erode their base then that bonus target is a lot further away. So, if you’re a good customer, even if it’s hard to get new facilities into play, now is a good time to hit them up for a better rate.
- Knowing they are up against a wall, many experienced bankers are leaving their post for grasses greener – leaving a vacuum of front-line bankers that are able to understand and represent your business to their credit departments
One thing is for certain, banks must lend money to make money so it won’t take them long to work out that they are hurting themselves right now and the directive will come down from the top of the tree to say “we want to lend more money”. So, the worm will turn but even so, given the loss of senior staff, the banks are likely to have structural weakness within their own ranks that despite a willingness to lend, hampers them in achieving that goal.
That’s all well and good but you can’t wait around for the banks to get their act together. So, how do you give yourself a shot at getting the deal done?
- Have your house in order – banks will want current data, so get your books right up to date.
- Pro-actively deal with any issues that could make your bank nervous – tax debt, losses, pending legal matters all indicate under-performance and/or uncertainty
- Demonstrate that you understand your cash flow now and under the planned growth scenario by preparing a 3-way model that includes not only your P&L and balance sheet, but detailed cashflow projections
- Demonstrate that you understand the banks’ needs – apply their metrics to your own data and demonstrate that the loan will perform under the given set of assumptions. Do a full risk assessment and plan to mitigate risks
- Be realistic about the assumptions you are making
- Get professional representation in your dealings with the bank
In truth, this has always been how to get a deal done. But sometimes if you had a good relationship, you could ‘wing it’ to an extent. Now, you can’t. You need to inspire them with confidence that:
- The business is performing and will continue to perform; and
- You inspire them with confidence that you are a person worth backing.
If all that fails, then you’re looking for alternative funding sources. We’ll have more to say about what they look like in coming posts.
If you’re preparing to hit up your bank for a better rate or additional funding, contact BridgePoint Group to help you get it right first time. Call us on 1300 656 141.