With the second wave of COVID-19 impacting some areas with longer shutdown periods and the flow on impact of a slower recovery for many businesses, the banking and credit landscape is changing with a new focus emerging that may surprise some.
Whilst some Government initiatives such as JobKeeper have been extended, other programs including private sector initiatives have not. This will inevitably place additional pressure on the cashflow of businesses in the coming months. The result is a financial environment where requests for new credit, and reviews or modifications to current facilities could become very crowded as we approach the end of 2020 and head into early 2021.
This environment has pushed banks and lenders to refocus on reviewing the portfolio of their business customers on a more regular basis. So, not only can you expect your bank to ask for updated financials and scenario stress testing when reviewing your current facilities or assessing new credit requests, you can also expect them to be reviewing your portfolio and evaluating your viability even if you have not approached them for additional credit, or have time left on your facility.
The importance of communicating your business strategy right now cannot be understated.
Banks remain interested in providing assistance but in this environment, they need to have confidence in the management team’s ability to execute the business’ strategy during Covid-19 and post pandemic. This requires you to focus not only on the “what”, “why” and “how” but importantly the “who”.
It is up to you to ensure your business narrative is communicated correctly and effectively to the decision makers. Don’t rely solely on your Relationship Manager, he/she has enough to do in the current environment. Your Relationship Manager may be well versed on the details of your business operations, owners and management team, but it is the credit group of your lender that will determine the success or otherwise of your credit submission. Additionally, you are the person best positioned to explain the quality, resilience and nuances of your business.
To give the credit group confidence, your business needs a strong narrative. When done well, it’s a tool you can use to help move you higher on their list for attention.
A strong narrative explains:
- Effect of COVID-19 regardless of whether it’s positive or negative.
- Level of material impact - is all the business impacted or only partly?
Approaching your bank or lender with a strong qualitative narrative combined with a complete quantitative three-way cashflow assessment is extremely powerful. It provides a complete picture for the bank’s credit process, but more importantly, it allows your business’ story to be told in the way you want it to be told.
Presenting the information to the bank in a formal document helps ensure the information gets to the decision makers intact rather than having to be created by the Relationship Manager based on their understanding of your business. Above all, it helps show the bank that you, the business owner or management team of the business, are proactive and on top of the situation both operationally and financially, providing the bank with a higher degree of confidence to support your business going forward.