DIC Excellence Series Presented by Salvus Advisors JLT

Raising bank finance for Service and IT companies

31-05-2012

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How banks perceive ALL SMEs…..
SMEs are perceived as high risk…

 High concentration risks
 Key man risk  Limited fall-back options  Poor financial management & transparency  Unable to articulate financing needs

 Skip risk

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© Copyright SALVUS. 2011

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How are IT and service companies different?
Hardware (IT) and service companies slightly different…

Both sectors perceived as higher risk.
 Low entry barriers  No exclusivity, low USP levels?

 High stock obsolescence risk
 Service companies : Dealing in intangibles  Higher risk of commercial disputes

31-05-2012

© Copyright SALVUS. 2011

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The Preparation: If you are a Start up
By start up, any firm that is less than 2 years old…

 Begin by maintaining clean accounts
 Use an outsourced accounting service provider  Ensure you have good (cheap) software  Get your accounts audited by a bank empanelled auditor  Ensure your payment record is good

 Open operating accounts with 2 “right” banks
 Build good reputations with buyers/suppliers
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© Copyright SALVUS. 2011

Start-ups, continued…..
Balance sheet lending to start-ups, almost impossible now.

So what are your options?
 Expensive parameterized loans  Some structured trade financing MAY be possible

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© Copyright SALVUS. 2011

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Mature, 1st time borrowers
Hard work, even for mature companies, especially service providers…  Clearly identify financing needs as a bank would  Prepare a brief but comprehensive business plan  Put together a comprehensive information pack  Identify the appropriate bank  Get introduced, if possible

31-05-2012

© Copyright SALVUS. 2011

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Showcase your strengths
Identify your strengths. Consider whether you have:
        High quality suppliers / buyers Some identifiable USP Established track record with suppliers & clients Good history of managing stocks & receivables Number of repeat clients Testimonials from suppliers/clients Process qualifications from international, reputed bodies Financials audited by reputed auditors

31-05-2012

© Copyright SALVUS. 2011

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Case study..1st time borrower
The client…  Logistics, freight forwarder, supply chain service provider  Pros: Good client base Reasonable financials Fast growing  Cons: Chunky exposures to few clients Slightly erratic track record No borrowing track record

© Copyright SALVUS. 2011

The SALVUS Solution….
    Chose bank that understood service industries Structured financing based on company strengths Focus: performance track record and quality of clients Short duration of debt

Solution: to set up a factoring line for discounting receivables. Next step: to finance network expansion vide loans, once track record established.

31-05-2012

© Copyright SALVUS. 2011

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THANK YOU

31-05-2012

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