United Kingdom
The borrower's perspective - Neil McDaid
"I can't change the direction of the wind. But I can adjust my sails."
We surveyed over 140 UK mid market corporates, about their experiences during the debt crisis, lessons learned and their outlook for the future.
The results of our survey confirm that at a grass roots level corporates in the UK midmarket are not yet seeing a significant improvement in borrowing conditions. No surprises there. Beyond this though, the story is much more interesting.
Looking briefly at the big picture issues:
- The lending commitments of the state owned banks do not appear to have had a significant positive impact on borrowers, so far.
- There is a strong expectation that debt will become more readily available from the core group of lenders who are active in the UK market but no belief that this will bring down the price of debt.
- There is a big distinction made by borrowers between the conduct of the investment banks over the past 12 months and the goodwill still felt towards individual relationship bankers: In this market, borrowers hope and expect relationship to mean something.
- The most optimistic respondents are those who have worked hard to improve communication. They have improved the quality and quantity of information that they share with their bank and they are expecting more from their banker in return.
- This is interesting but only if it influences the actions of borrowers to improve their own circumstances. There are a number of specific steps that some borrowers are taking, including;
1. Talk to your bank more... and talk to more banks
Corporates are no longer willing to just maintain one bank relationship and are opening lines of communication to banks they have not spoken to previously. Answers to some of the following questions might help inform decisions around which is the best banking partner for your business: How many other customers are you responsible for? What are your targets and how are you incentivised? How does my business compare with others you know in our industry? What do you and Credit see as the key risk issues in my business?
2. Invite Credit into your business
Often, borrowers never actually get to meet key decision makers in Credit. In our experience, meetings with Credit Officers that are used as an opportunity to provide them with insights into your business will better inform their decision.
3. Use business valuation as a reference point
Agree the business valuation methodology upfront and use the initial financing model as benchmarks for the progress of the business against plan. Businesses rarely - if ever - perform exactly in line with base case projections but keeping sight of the basis on which the bank originally lent will help you better understand the banks' perspective as time passes.
4. Negotiate - no two businesses are exactly the same
If you are satisfied that your bank knows your sector and that you have provided them with all the information they need to make a fully informed decision, there comes a point when you have no alternative but to hope and expect them to correctly credit rate your business and set pricing and final 'hold' accordingly. There is a little negotiating room creeping back into pricing, especially for the strongest credits, but not much. However, the suggestion that terms are non-negotiable because 'this is market standard' can and should be gently challenged.
If you would like to discuss this subject, or have any questions about this article, please contact Neil McDaid, Corporate Finance, or your local BDO adviser.