Lenders from Mars…..
Martin How MA (Oxon), ACIB
Imagine for a moment a meeting between a business owner and a lender to discuss raising finance for a new project. If you were a fly on the wall what would you hear? How well prepared will the business owner be for the questions posed by the lender? How often will a line of questioning be opened by the lender that the borrower has not anticipated? At times, you might conclude that neither spoke the same business language and found it difficult to get their respective points of view understood….if the lender is from Mars then the borrower might indeed be from Venus.
Choosing Financial Partners
Most lenders have Relationship Contacts tasked with managing the client relationship and representing them internally. How well do you know the appointed Relationship Contact? Did you choose that individual in a competitive tender situation or were they introduced by the lender as a new representative without prior discussion or agreement?
In either of these eventualities to what extent did you explore their skills, knowledge of your business sector and personal leverage within their employer? Are you entirely clear on the individual's key responsibilities? Who provides day to day service delivery in all the product areas vital for your operational efficiency? Where does responsibility sit when your named contacts are absent on a course or holiday? To whom does your Relationship Contact report and what is their role and responsibilities? Have you met them?
If a borrowing relationship exists, who prepares and presents the borrowing proposal and do they remain responsible for the lending? What is that person's depth of experience in writing and presenting credit proposals for your business sector and how well do they understand the business opportunities and threats? We will all pore over professional profiles, websites and invariably seek a formal presentation when choosing a key supplier, and particularly so for important professional services partners such as accountants and lawyers. However how often do we perform the same level of diligence when negotiating an acceptable finance offer? The process of negotiating terms is sometimes all-consuming and choosing the Relationship Contact takes low priority. So how do you put your prospective Relationship Contact to the test?
The start point is always to understand the individual's role in the lending organisation. What are their key areas of responsibility and targeted deliverables? How knowledgeable do they appear to be about the internal workings of their organisation and what can you discover in terms of their experience by enquiring about their time in the business and the previous roles they have performed? Have they management responsibility for other members of the team, who do they report to and what level of responsibility and involvement does that person have with you as a client?
What clues can you pick up in conversation about the credit appetite of the lender and your contacts relationship with Credit Underwriters? How confident are they about the specifics of lending policy and guidelines when speaking about a potential transaction?Ask them to consider a potential project you have in mind and to tell you what they think about the transaction, what further information might be required and how they would approach the deal and determine the terms and conditions. Nervous or inexperienced lenders will be more likely to defer to their credit underwriters and be very wary of giving a firm view on what is likely to be possible. Look out too for the inexperienced but eager to please contact who is positive but fails to ask fundamental questions and is difficult to pin down on specifics. Very few lenders delegate decision making authority to the clients first point of contact for a commercial lending facility for anything other than a nominal amount, however, a good Relationship Contact should be able to walk you through the information they will need to make a decision and the key parameters they will operate within when assessing credit.
There are many potential sources of SME finance. Sometimes it is difficult enough to navigate the debt markets and secure the required funding on the best possible terms. How much should be set on the Relationship Contact and who has the time to invest in investigating this area?
It is recommended that the owner-manager consult with their accountant but also perhaps a commercial finance broker to take advantage of their knowledge of specific lenders and the experience and skills of specific individuals with a proven track record. They should be able to signpost the borrower to the right Relationship Contact and where the individual is not known to them play a role in helping the borrower to assess their qualities.
This paper represents the personal views of the author but is the product of very many years spent working in Relationship Contact roles and Credit Underwriting. If you require more information or want to discuss or debate any of the points made then please do get in touch.
About The Author
Martin How MA (Oxon), ACIB, is a Medifinance Consultant.
Martin was a senior manager in the financial services industry for over 35 years, leading commercial lending teams across a broad geography and working with a wide range of business sectors. Martin is an Associate of the Chartered Institute of Bankers and holds a Certificate in Credit and Certificate in Healthcare from the ifs School of Finance