Banks are often unfairly portrayed as the most frustrating element in the life of any business owner but with the right encouragement can be an entrepreneur’s strongest ally. It’s a sad fact, however, that when businesses really need support, for expansion or rescue, the banks can be at their most ambivalent and infuriating.
Such were the circumstances for a north Midlands company manufacturing diagnostic and maintenance apparatus for specialist industrial applications.
Only two years old, with a positive balance sheet from considerable success in exploiting their technical niche and collecting their money within forty-five days. A straight forward business, growing rapidly but beginning to burst at the seams on the ground and at the bank.
With only £100 of capital in shares plus £20,000 in Directors’ Loans, the bank would not lend anywhere near the funds required for further expansion as the business was too new.
“Cannot help further”, said the bank. “You’re in danger of over-trading and we advise you to slow down. If this continues, we shall have to consider administration at best. We stand in ‘Shadow Directorship’ you see…”
Not very helpful – despite the superb debtor strength debenture cover of some three times the requirement. And the bank had two unlimited, joint and several Personal Guarantees – each worth perhaps £100,000.
On Appraisal we formed the impression that the bank had misunderstood – indeed, that it was encouraging insolvency by questionable over-prudence.
After some four months of active involvement by Mercantile a new business plan was evolving, knitting the client’s ideals and hopes into realistic expectations – and we were in search of an Angel.
In fact, a small group was utilised on this occasion, taking a 26% stake and with one of them acting as non-executive Finance Director. They introduced soft loans on very attractive terms together with facilities from their existing bank, which capped the Personal Guarantees at £25,000 each.
The FD is available at any time, but in practice is only really active in strategic and monthly boardroom matters, with day-to-day operations and the introduction of ever more new profit opportunities entirely in the hands of our client.
Expansion, in particular, requires innovative banking facilities – sadly, increasingly rare on the high street. But funds are available for strong business propositions, properly presented to the right sources – without a massive loss of equity or enormous guarantees!!