It’s good to talk …even to your banker!

Ger Blake, Director, DSB explains why it’s important to communicate with your bank.

Good times ahead

Without doubt, the Irish economy has turned a corner and business is on the up. Most economic indicators are positive and there is a general sense of optimism among the SME sector again. However, the recovery may not be impacting every business yet, whether due to location, the varying pace of recovery in different regions, or more specific issues impacting your business.

A business can only benefit from an upswing if it’s in a position to do so. If your business has survived into 2017, then, clearly, you are a resilient trader, but financial constraints may remain
limiting your return to growth. These could be short-term and seasonal, or more inherent long-term debt issues. The common denominator for dealing with these is your bank.

As in any relationship, communication is key. The three rules for addressing financial difficulties are communicate, communicate, communicate! Various consumer and business protection codes
have been introduced or dusted down since the economic downturn but these are simply rules of engagement to be followed by the lenders. They are process-driven compliance tools used by the bank to fill up your in-tray. They will not fix any financial issues you may be having. Don’t bury your head in the sand.

Financial issues

Most SME’s experiencing financial difficulties tend to fall into one of the following categories:

• working capital or cashflow issues;
• distressed, long-term debt or balance sheet issues.

The hardware industry is a seasonal business and can be materially affected, for example, by serious storms or a protracted spell of good weather. As such, every hardware business needs access to cashflow support. In some cases, historical cash reserves can see you through the year. However, as a result of a few tight years some SMEs need outside help.

Talk to your bank about overdrafts or invoice discounting. Or, perhaps you should seek a seasonal repayment plan on any existing debts. Cashflow issues should not hinder growth. If, on the other hand, your business is suffering from an over-leveraged balance sheet, then you need to formulate a longer term plan. Professional advisers are recommended in this case. All banks (including vulture funds) are now well-used to coming up with solutions to distressed debt situations – be it restructuring or, indeed, refinancing to another institution.

You need to determine what is a reasonable level of sustainable debt and meet your bank to discuss same. The bank has various options open to it to deal with an SME with a view to ensuring a
continuance of trade; including extending the term, debt parking or indeed debt write-off.

RULES OF ENGAGEMENT

1. Ensure your submission to a Bank is in writing and is comprehensive. Don’t assume they know or understand your business. Include financial statements and trading projections.
2. If the first answer is ‘no’ then appeal it internally in the bank. If still ‘no’ appeal it to the Credit Review Office. It does work!
3. Personal debt issues should not impede your business getting access to credit. Take advice prior to making submissions but, if a business can meet the bank’s lending criteria, it should be assessed independently of a business owner.
4. A number of alternative funders have recently entered the credit market. These new lenders provide everything from leasing to invoice discounting to commercial property loans. So look around and don’t assume the pillar banks are your only options.
5. Communicate regularly with your relationship manager, even if it’s only to tell them how well you are doing.

Ger Blake, FCCA, is a Director at DSB with over 23 years’ experience specialising in business advisory and corporate turnaround. He has worked with many SME clients in the retail and hardware sectors.

This Business Support article featured in the May/June 2017 edition of The Hardware Journal.