The Previous Request

We were approached to look at a proposal to fund additional retail space for a business that has survived the recession well, had a plan for the future, but whose last couple of years accounts were not as strong as everyone would have wished.

The space would allow the client to bring in a new brand and improve margins. They had financial projections based on sound principles but had been turned down by two high street banks.

We spent time with the clients to understand their plans, not just the numbers but how spreading income streams reduces the risk, how the plan integrates with the current business, where there are cost savings as a result of utilising existing capacity, and we put together a proposal to present to an alternative lender. It turned out that the lender had seen this proposal previously as a result of the bare projections being sent in by a broker and it had been declined.

Nevertheless, after reviewing our full appraisal and with further discussion the lender was able to approve the funding as they had got a proper understanding of the risk, and proposal. We were paid by the lender sharing their standard fee and the client ended up with the funded they needed at no extra cost.

The Negotiation

During the recession our client had seen his interest margins rise because the bank perceived an increased risk in continuing to provide funding, although they were happy to leave facilities in place.

With improving results and a growing business our client had his facility review coming up. He engaged us to review his financial performance, advise him on what was likely to concern the bank and attend the meeting with him. The majority of the key indicators of the business were moving in the right direction and although the client had no formal projections, we were able to take historic information and project it forward to give us a likely scenario and basis for discussion.

The bank were offering to renew the facilities at existing rates for another 12 months. We questioned them on how they felt about the risk to the bank, what their interpretation of the financial performance was, what their view of the non-financial risk was, and a range of other key areas a bank will consider. After agreement that the business was seeing a more robust performance the bank went away to consider the discussion and our view that rates had not been reduced for our client as quickly as they had been raised. They came back with reduced rates and agreed to substantially reduce the renewal fee for this year. Our costs were half of the benefit our client derived in the first 12 months.

The Care Sector

Specialist care sector properties, the existing bankers had lent money to construct, expand, and grow the business. They had also locked their client into an interest rate product that was a burden and would see the interest costs of the business rise significantly.

The interest rate had been changed from Base Rate to LIBOR (to the banks advantage) and unrealistic terms had been imposed. With an “Intensive Care” manager taking responsibility and the relationship broken down, we became involved.

After long negotiations mainly around the Interest Rate deal, a revised package was agreed with a different lender, putting in an appropriate loan structure over a suitable term, agreeing much more modest overdraft limit to meet the clients needs and working capital requirements, and crucially, linked to appropriate terms and conditions which were not setting the client up to fail. With total debt of more than £5m, there were significant interest savings as a result of the structure, and exiting the Interest deal.

15 months on, this is a sound business able to concentrate on what it does best, enjoying a good relationship with their lenders and the terms and conditions being monitored and met.

The Importer

£10m turnover business importing bespoke goods from the Far East and India for major UK outlets, goods needed to be paid for as they landed.

Lead times were short - docks to customers in 20 days and invoiced on delivery. The bulk of trade was in the second half of the year with the majority in the last quarter.

Existing bankers put in place an Invoice Finance deal which initially released cash to pay for imports. As more imports arrived the cash dried up - the IF deal only released cash when invoices were created, 20 days after payment was due. No cash meant goods waiting at the docks.

We arranged import finance to bridge the gap and still linked to an IF deal for end to end finance, the cash cycle sped up considerably, allowing the client to grow their import levels without consuming substantial cash and tying it up for long periods.

The bank had a structured deal, the client had funding for the length of the trade cycle, and we agreed variations in the level of facility during the year to match needs and minimise the exposure of both the client and the bank.