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Credit Review Office
1850 211 789 [email protected]
Finance for Growth presentation
SME Banking and Credit
Paul Kerr Senior Reviewer
Credit Review Office
June 2018
Mission - ensure bank credit system operating effectively for small and
medium-sized enterprises, incl. sole traders and farmers.
• Simple and effective review process for businesses refused / reduced /
withdrawn credit by bank (AIB, BOI, Ulster, PTSB)
• Information and Helpline 1850 211789
• Reviews refusal/restructure/refinance of up to €3,000,000 (small fee)
• Small staff and a panel of experienced Credit Reviewers
• Reviewers engage directly (phone/email)
Recommends credit facilities be provided in > 50% of cases
Credit Review Office
1850 211 789 [email protected]
Irish SME Banking
1850 211 789 [email protected]
Banking Sector:
• Legacy Issues – Regulation, Capital Adequacy, Cost Cutting
• Concentration – 92% of market in 3 banks
• Focus on core home market – less international• Automation – online, call centre, centralisation• Separation of Relationship Mgr and Credit Decision Making• Change in staffing levels and experience• More risk averse
SME Banking – commodity or scarce resource?
Irish SME Banking - Transactional
1850 211 789 [email protected]
DAY TO DAY/TRANSACTIONAL BANKING
• Build a relationship with your bank – on paper/face to face
• Open an account as early as possible
• Track record with credit – small loan before you need big one
- Credit Bureau
• References/3rd party validation
• Bank views ‘Connection’ – personal and corporate
3 Parts to the Credit Process
1850 211 789 [email protected]
Step 1: Make the application
Step 2: Bank Credit Assessment/ Credit Approval
Step 3: Drawdown
ALWAYS TAKES MUCH LONGER THAN YOU THINK!
7
Banks lend to Low/ Medium risk SMEs
CREDIT AND BANK DEBT
KEY = Cashflow/ EBITDA
- Sufficient future free cash
to make projected repayments
- Are the projections credible?
Bank Boards’ Credit Risk Appetite,
Lending Policies, Regulation and Capital
Adequacy
STAKE
Banks -V
Other
Stake in
the project
(60-70%)
SECURITY
Quality and
Realisability
SECTOR
Exposure
to
Market/
sector
The SME side The Banks’ side
GOING
CONCERN
VIABILITY CREDIT
TRACK
RECORD
-Account
operation
-ICB
Common Problems with SME Credit Applications
1850 211 789 [email protected]
Requests for credit may be poorly presented by Borrowers
• no clear business plan
• lack sufficient detail
• inadequate and/or poor quality financial
information
Aging Financial Accounts - produced for filing/tax return purposes – info too old in times of rapid business change
Financial Advisers can assist Borrowers in presenting credit applications, but promoter must ‘own’ plan
Managing your bank interactions – keep the record clean
How to Make a Strong Application
1850 211 789 [email protected]
• This is a sales pitch – you are competing
• Preparation is Key – documentation required includes
• Business Plan – financial reports and cashflow projections: REALISTIC
• Statement of Affairs/Asset and Liability profile of owners/promoters
• Confirmation that tax affairs in order
• Details of Security on Offer
• Clear Aims/objectives: Convince bank proposal is viableEnsure your RM (agent) understands your businessConfirm all the information needed has been providedAdd a proposal document to the Application Form
• Support – bring someone with you – accountant/adviser
• Establish timelines and follow up proactively
1850 211 789 [email protected]
Credit Assessment
KEY: Demonstrate Viability / ability to repay
• Promoters Experience/Capability/Track Record (Business & Credit History)
• What market is the enterprise involved in-growing or declining? Competition?
• Past Performance - historic profit/cash flow
(past 2 years may not be indicative)
• Future Potential - projected profit/cash flow
how will business model change
• Performance against projections so far
• Sales pipeline
• Aged Debtors and Creditors
• Existing Debt incl Statement of Assets and Liabilities of promoters
Overall aim: reduce risk
• Viability/Going Concern : consider when applying
▪ improved clarity, up to date financials, address total connection, company structure, shift in business model, third party validation
▪ Shorten loan period/reduce risk to bank//match to use of funds
▪ Seek low cost or flexible funding – Strategic Banking Corporation (SBCI)
▪ Banking ratios – interest cover, Loan to Value, sensitivity analysis
• Stake – Directors loans, Equity investment, Microfinance Ireland, Angel investors, EIIS, ISIF
• Security – tangible assets, govt. guarantees (CGS)
• Sector – know your sector very clearly
1850 211 789 [email protected]
Finding Solutions
STAKE
Banks’ -V –
Others’
SECURITY
Quality and
Realisability
SECTOR
Exposure to
Market/locality
GOING
CONCERN
VIABILITY
Access to Credit - Government Supports
1850 211 789 [email protected]
Access to Bank Credit - main source of funding for majority of Irish SME’s
4 main Government initiatives to ensure credit is available for viable SME’s –addressing market failures
1. Credit Review Office
2. Credit Guarantee Scheme – lack of security/novel concept
3. SBCI/ISIF – cheaper funding/alternative providers
4. Microfinance Ireland – Microenterprises, up to €25k, less risk averse
Updates: SME ONLINE TOOL www.supportingsmes.ie
Access to Credit – Alternate providers
1850 211 789 [email protected]
Private Sector Alternatives: www.ifpireland.ie (trade body)
1850 211 789 [email protected]
Credit Review Office – Summary
• Businesses are starting/growing and need funding – credit and
equity/owners stake
• Credit is harder to get in recent years, and can cost more in Ireland
• Fail to prepare, prepare to fail
• Use all the tools in the Credit toolbox to de-risk/reduce risk for bank, and
cost for the borrower
• A negotiation process - informed borrowers do better