Sources of Finance. Andy South Business Partner Clydesdale Bank. Steve Merchant Head of Asset Based Lending Services Baker Tilly

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1 Sources of Finance Andy South Business Partner Clydesdale Bank Steve Merchant Head of Asset Based Lending Services Baker Tilly Angus Rooms Invoice Finance Partner Clydesdale Bank

2 What we will be covering? The Business Plan How does the lending process actually work and who does what? Credit Decisioning What is analysed and How is the final decision reached? Invoice Finance/Asset Based Lending Working examples of successful Invoice Finance transactions

3 National Australia Bank

4 Clydesdale and Yorkshire Bank

5 The Business Plan Don t reinvent the wheel does the business already have their own plan which is regularly assessed, interrogated and monitored? Keep it simple Precise and factual Where did assumptions come from? Reach conclusions

6 Common failings Far too much detail Lack of cash flow forecasts No sensitivities Break even calculations Amount required insufficient for purpose Seasonal variations Security values

7 What to include Background Purpose and structure Amount Financials Debt Servicing Security Risk Summary

8 The Lending Process Bankers roles and responsibilities Research Credit Assessment and Judgement Based Lending Initial Customer Meeting Early Discussions with Credit Preparation of the Credit Application Reaching the Credit Decision

9 Research: searches and statements Research: Local Knowledge, Press, Internet Web site, and Search Engine order? Full facts and history Public Domain information - +ve/-ve Full Disclosure Mitigate any issues 6 Months of Statements if new to bank. 1. Looking at trends 2. Maximum/Minimum Balances look at the swings 3. Unpaid Items? 4. Excesses? 5. Stopped Cheque Charges? Early engagement with Credit

10 Initial Meetings Meet the Key Management Who runs the show? Experience, Responsibilities, Governance, Key Persons, Succession Planning, Contingency Planning Get to understand the Business Systems Key Performance Indicators? Walk the floor

11 The Credit Application Management Background Purpose Competitive Position Financials Projections Structure of Facilities Risk Assessment Risk Reward

12 Reaching the Credit Decision Primary Repayment Trading Alternate Repayment Secondary Repayment Wind down Asset Values Bank Security

13 Types of Finance Term Loan Asset Finance HP/Leasing Overdraft Invoice Finance

14 Steve Merchant Steve Merchant Head of Asset Based Lending Services

15 Invoice finance/asset based lending Content Background to the sector How does it work and what are the benefits The principal players Market update emerging from the credit crunch The difference between invoice discounting and factoring Funding other assets alongside invoice finance Case studies

16 Invoice finance/asset based lending Background of the sector Continues to be dominated by invoice discounting and factoring Definition of ABL invoice discounting led facilities Extension of capabilities inventory, P&M, property, cash flow Prior to credit crunch a strong growth story 17.6 billion September 08 Four-fold increase in 10 years Credit crunch only short term impact Dominated by UK bank owned but variety of new entrants

17 Invoice finance/asset based lending What it is and what are the benefits Funding secured against debtors and other assets Level of funding moves daily in line with debtors Provides good security to lender Supports fast growing, new start, transactions and turnaround Intimate involvement with the sales ledger and other assets Two types of debtor funding invoice discounting and factoring (more later) Able to fund other assets - inventory, P&M, property

18 The Principal Players

19 Impact of the credit crunch

20 Invoice finance/asset based lending Market update emerging from the crunch Well and truly open for business Eager for new business/refinance competitors Number of new entrants More secure lending the preferred structure for banks More attractive returns capital adequacy/basel II+III Bank overdrafts/senior debt likely to more expensive No longer alternative but mainstream

21 Market dynamics Four-fold increase in decade to 2008 Market higher than pre-crunch levels

22 Sector breakdown

23 Invoice finance/asset based lending is for businesses of all sizes

24 Invoice finance/asset based lending Funding of other assets New entrants source of expansion of capabilities Inventory revolving /working capital funding Must be owned (no ROT) and subject to valuation Plant and Machinery and property term loans Unencumbered and subject to valuation Cash flow advances for particularly strong credits Invoice finance continues to dominate

25 Angus Rooms Invoice Finance Partner, Clydesdale Bank

26 Invoice Finance: urban myths? Only a small number of businesses use Invoice Finance? Invoice Finance is just for small businesses? Invoice Finance is Lending of last resort? Credit control will be out of my hands? Invoice Finance systems are difficult to operate? There must be lots of hidden costs? You can t use Invoice Finance for Export Debtors?

27 What is required? Clean and unencumbered debt. Well spread sales ledger. Good quality debtors. Suitable proof of debt (eg, signed delivery note) Well managed administration systems. Reasonable bad debt/dispute history. Reliable sales territories (Export).

28 Suitable Industry Sectors Most businesses where goods/services are Made/Delivered,Sold & Forgotten. Recruitment Wholesale/Distribution Printing Haulage/Transport Manufacturing Waste Management/Recyling

29 Clydesdale Bank USPs Confidential facility Debenture Clydesdale Bank PLC Transparent pricing No daily compounding discount rate No audit fees No transfer fees trust to current account Same day availability Online month end reconciliations Market leading Internet system current account link

30 Recent cases 1m multi-currency line for Sports & Leisure wholesaler 225K multi-currency line for new-start IT Recruitment Co

31 Recent cases 150K line for Commercial Bakery 1m line for Specialist Haulage Co

32 Summary The Business Plan Lending Process Credit Decisioning Invoice Finance/Asset Based Lending Examples of successful Invoice Finance Transactions

33

34 Q & A

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