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Raising finance – the hot topic


The issue of raising finance during the current economic downturn was the hot topic at a recent IoD Kent Finance Discussion Forum.

The Forum, hosted by Clydesdale Bank and leading accountancy firm Reeves+Neylan, both IoD marketing partners, brought together many of the county’s financial experts and business leaders at the bank’s Financial Solutions Centre in Turkey Mill, Maidstone.

Emma Moore, invoice finance partner at Clydesdale Bank, said: “We are in a fortunate position that we are a strong and well-capitalised bank, so despite the current economic climate, we continue to take a prudent and consistent approach to lending, meaning that for the right proposal and the right deal, funding is available."

She added: “But it remains essential that business owners help themselves by putting the best possible case forward.  Surprisingly, businesses too often fail to provide sufficient Profit & Loss or cash flow forecasts to support their request for business.  Often there is little or no explanation of previous variances from budgets in terms of the business’ performance and management reports and procedures were less than robust.”

Despite the scale of the challenges facing many businesses, there is often a tendency to be over optimistic and fail to build in contingencies, which are particularly important during periods of economic uncertainty.  Management often also have unrealistic expectations with dividend policies often being overly generous with the majority of profits being drawn down leaving little or no reserves in the business.

Emma Moore said: “Today, more than ever, banks are looking for evidence of an established business which had worked through troubled times before, has a strong management team and a business model that’s been ‘stress tested’.  Also important is financial strength, a good credit rating and management accounts with consistent track record of profits and a business that is capable of generating cash.

“All that being said, as a Bank we are still in a position to lend to companies in a strong financial footing, including those who may be looking to quietly acquire their competitors and grow market share”

Acknowledging that the economic downturn had brought with it a whole new set of rules for companies to play by, David Forge, Principal Adviser to Reeves+Neylan and the Kent Chairman of Clydesdale Bank, added: “Despite this there is still money available for the right deals, the slowdown in lending has as much to do with the drop in business confidence as it has to do with the current economic conditions.  We have seen examples of prospective deals which have negotiated the due diligence process, secured a lending agreement, only to be put on hold at the eleventh hour at the request of the client.”

Discussions then focused on the current banking market which focused on the issue of LIBOR (London Interbank Offered Rate) and the fact that the interbank lending rate is currently about 1.7% above the base rate, which meant that interest charges of less than 2% over base meant banks would be making a loss on lending.

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