24/04/2018 – IS ONE BANK THE RIGHT CHOICE FOR ALL FINANCE NEEDS?

In this article we take a look at what businesses both large and small should  consider when looking at where they source their finance needs.

Banks generally look at finance around the following:

  • Aggregation
  • Security
  • Lending approach

 

Aggregation of Bank facilities 

When providing finance most Banks will “aggregate” all facilities that they provide to both the company, associated companies and directors.

What is the problem with this approach?

  • Banks will generally only lend up to a certain percentage of the Market Value of the Assets they hold. As a result of aggregation this may prevent the company obtaining an increase in core working capital facilities (such as the Bank Overdraft) in the future as the bank has reached its prudential level with the company against the security held.

 

What to consider?

Whilst each company is different in their finance requirements one consideration is to review what finance facilities are held with your Bank? Some companies consider splitting their banking facilities between core banking and non-core banking products (such as Equipment Finance) therefore keeping a buffer for cash flow requirements.

Security

A bank will typically take a General Security Agreement (“GSA”) (previously known as a Fixed and Floating Charge) over the assets of the company plus real estate security and associated individual and company guarantees.The GSA in particular is a very powerful document that a Bank holds over a company. It provides security over all of present and after-acquired property of the company. This means that the bank has security over everything the company owns now and in the future.

This includes debtors, equipment or real estate or any other asset that the company holds.

What are the negatives with a GSA?

  • The bank has the right within the GSA to appoint external parties to either review your business or in extreme circumstances place your company into external administration. If for example the company fails to meet any covenants placed on it (such as financial covenants). We also know of examples where an investigative accountant (at the company’s cost) has been appointed even with a client was meeting their obligations.
  • Any equity in the assets of the company is effectively the Bank’s.

 

What to consider?

  • If the Bank holds real estate security and the finance amount is covered by this security consider whether they need to hold a GSA
  • Split your Banking that enables a track record with another Bank
  • Move non-core banking away from your Bank.

Lending approach

Not everyone ticks all the boxes for lending from their Bank. If you have a unique business circumstance or assets that need to be financed you may need a financier that will be prepared to back the companies and directors track record and expertise. A better deal outside the box with another funder may be negotiated.

In addition your Bank may not have the products or require additional security where others do not.

What to consider?

  • Approaching other funders who will assess the proposal differently.
  • Talk to an experienced Commercial and Equipment Finance Broker. We have the expertise to be able to locate funders and understand how an application should be submitted to each particular funder