United Kingdom
A question of perspective
Understanding both the corporate and banking point of view is vital to successful financing in 2010
Although lending has stabilised, we believe that banks will continue to be understandably selective in 2010 as risk levels remain heightened and capital requirements continue to constrain activity. On the other side of the curve, it seems likely that 2010 will see an increase in the number of corporates looking to refinance or raise money for new ventures.
Events ahead in 2010 may add to this uncertainty. For corporates, the general election threatens to bring a tightening of the fiscal screws as a new government, of whatever colour, looks to rebuild public finances by raising taxes and toughening up on Time to Pay (TTP) agreements. For banks the UK reporting season may lead to strategy decisions that impact on their lending criteria.
In such a climate there seems little merit in holding out for conditions to improve. Instead, our view is that it’s time to work with the cards you have been dealt. And work with the banks to make sure you are playing to your strengths.
The banks’ perspective
BDO recently carried out a survey, asking banks about the criteria most vital to their lending activity. As expected, management and cashflow were the top two. Asked what advice we should give our clients if they may be about to breach their covenants, nearly 70% of the 20 banks who responded highlighted the need to contact them quickly and provide accurate and realistic information.
What this emphasises is that now, perhaps more than ever before, banks need the right information at the right time to make the right decisions.
And as banks are becoming increasingly affected by capital constraints so corporates should consider being more flexible about how funding is introduced into their business. Banks may, for example, be more willing to consider asset-based solutions. Indeed, our view is that asset-based lending will provide a stronger alternative in 2010.
The corporate’s perspective - 3 key steps for 2010
1. Be prepared
Have everything in place before you begin to engage with potential lenders. That means having all the key financial data ready to address the banks’ credit concerns – and presented in a way that gives them confidence. It also means being clear about both the best financing structure for your business and its availability in the markets. Although a quick decision may be vital to your business, only by taking the time to get your proposal together will you put the bank in a position to address it as quickly as you would like.
2. Understand the market
Each lender has different appetites and different approaches. By taking advice and knowing in advance how individual banks are likely to react – in terms of pricing, quantum, and cash v asset-based lending – you can consider the best way to proceed and put the right proposition to the right lender.
It’s almost always a good idea to consider more than one lender. For the corporate it helps to ensure that you receive the most competitive deal in the market. For the bank it means the risk being shared with other financial institutions. It is also worth remembering that in most cases banks would not replace the incumbent lender in its entirety.
3. Do the deal
From preparing KPIs and financial models to presenting the corporate’s case, and from negotiating due diligence to executing the deal, refinancing can be both time and management intensive. By organising and fronting the whole process BDO can minimise the impact on your business while securing the best possible deal and making sure you are kept fully updated on progress.
Increase your options in 2010
With experience that spans loan origination, structuring, execution and credit risk management BDO offers clients valuable knowledge and insight.