Mike Saul: Banks are in the lending game, and are still playing

"Banks are in the business of lending, and it's what we're doing. This does not mean that securing funding is without its challenges and it is clear that the days of super-easy money are over and the concept of relationship banking is now the primary focus.

So, what can businesses do to ensure that they're in the best possible position to secure financing?

Unfortunately, there is no 'one size fits all' guide that can be followed. Lenders are still evaluating businesses on their individual merits, so there is every opportunity to secure funding, however, if businesses can get two simple, yet crucial factors in line, they will stand in far better stead than their counterparts.

Every business will have its own individual needs but, irrespective of size, it should ensure it has both a solid business plan and a credible management team in place before it approaches a lender. Presentation and communication is key.

Business plans must take both a short and long term view. Firstly, there's the 18 month outlook which will outline the business' imminent needs and designs. This is essential for understanding working capital requirements and liquidity needs, and as such the type of covenants and lending terms that would be most appropriate for the company. The longer term plan should look much further ahead, indeed beyond and into the next generation of the business - the 5-25 year picture.

Whilst there will always be an element of crystal-ball gazing, these insights will offer lenders the opportunity to better grasp your business, your vision and how best to help you realise those ambitions.

This might be a case of realising the need for funding for future mergers and acquisition activity, or expansion beyond domestic markets. Having foresight of and discussing these plans is vital and very much part of the longer term, relationship banking model.

Communicating is essential. Any relationship, whether that be with members of staff or your suppliers, is based on open and honest lines of communication, and this should be no different with your lender.

In taking stock of plans and objectives, it's worth considering whether a specific form of funding is really right for your business. Many pubcos may not need longer term funding, or would not necessarily wish to be tied to a five year commitment, for example. The food and drink sector differs from many other sectors in terms of its funding dynamics. The need to maintain a fresh and current appeal will often see operators invest consistently throughout the year rather than at fixed points - a consideration that will have to be taken into working capital requirements, budgeting and any funding terms.

Operators need to ensure they're painting the complete picture, not only of the business but of how it sits within the sector. Teams need to show lenders they understand the dynamics of the industry and market, their staff and what motivates them. Clearly wide ranging conversations are essential and engaging all stakeholders is key.

As part of these discussions, a general aid that our teams use frequently to understand what level of borrowing is appropriate for a business is CAMPARI, which looks at:

C​haracter of the business - examining the management, resources, skills, culture, trading activity, industry outlook, competition and market

A​bility to repay - how will it repay funding and from what source, apply sensitivities and perform a break even analysis

M​argin - a bank assesses the risk margin based on the level of risk in the capital structure

P​urpose of the loan - ensuring that funding is in the best interest of the borrower and that the bank is not funding a loss

A​mount of the loan - is the amount appropriate, can it be repaid, what is the business' stake?

R​epayment terms - interest rate margin, the longer the term, the higher the risk

I​nsurance - against the possibility of the borrower being unable to repay.

Such knowledge is crucial for a bank to be able to viably assess a business. Operators have to be realistic about their aims and understand whether their offering is the most appropriate to their market.

Research of the competition and a clear line of thought of how to differentiate the business, giving it an edge, are important factors in the success of a business, and lenders will look to see that borrowers have thought this through.

Funding is​ available. Those businesses who will prove most successful in securing it will be those who above all understand the value of talking to their lenders openly and honestly."

Mike Saul is head of Hospitality and Leisure, Barclays Corporate​