Unprecedented trading conditions require bespoke lending solutions
Investec for Business offers funding options that can meet working capital requirements
Access to working capital to boost cash flow and sustain operations has become critical as local companies navigate Covid-19’s economic fallout.
The resultant drop in consumer spending and loss in revenue has compelled business owners to engage lenders and financiers to sustain them through the crisis. Yet, despite historically low interest rates, accessing credit and funding to address a liquidity crunch can prove challenging as many lenders adopt a cautious approach in the prevailing high-risk environment.
Hazel Banach, Investec for Business product head, says that businesses, especially those in the mid-market, may encounter challenges in accessing the right funding when approaching lenders that adhere to more one-dimensional credit risk management practices in the current context.
“Times have been tough for businesses, particularly over the past six months. As such, lenders can’t merely assess current financials to make informed credit risk decisions. We need to be cognisant that one swallow doesn’t make a summer — there is the need to differentiate between an interim financial impact and a fundamental deterioration in the financial health of a business,” says Banach.
When engaging with prospective new clients, what’s needed is a multifaceted assessment of the company and its operational history, while working together with owners and management to understand forecasts and future growth prospects.
It becomes important to understand the business operation before, during and after the lockdown to create solutions for clients in a future-focused manner.
“Key considerations include the company’s operational efficiency and debt levels before the crisis, what happened during the lockdown and how the business responded. And to marry this with insights gained from our existing client base, our experience in related markets, and prevailing macroeconomic trends to ultimately achieve the right outcome,” says Banach.
The need to procure base materials or boost inventory can tie up working capital early in the commercial cycle, which can strain cash flowHazel Banach
These qualitative business insights support the quantitative analysis of the company’s financial statements, relative to basic underlying credit risk criteria regarding solvency and debt serviceability.
According to Banach, this approach, together with their ability to manage ongoing credit-risk more closely and thereby responding to early-warning indicators, balances conservativeness with client needs.
“This granular analysis enables us to understand the full business ecosystem to deliver the right funding, now and into the future. It is incumbent on us as a business partner to our clients to fully understand the operation and find workable solutions throughout the working capital life cycle,” she says.
Investec for Business offers a range of funding options that solve specific challenges and can meet working capital requirements, while also creating scope to capitalise on emerging opportunities and provide headroom to grow in step with the economic recovery and beyond.
“Bespoke, fit-for-purpose lending solutions should serve as business enablers by allowing companies to access the right type of funding at the right stages in their commercial cycle. There is no one-size-fits-all solution,” says Banach.
For instance, trade finance solutions enable manufacturers or wholesalers to more effectively fund and manage their supply chains, from procurement through to sales.
“The need to procure base materials or boost inventory can tie up working capital early in the commercial cycle, which can strain cash flow,” says Banach.
Importers face additional challenges around the administrative burden and logistics complexities.
“It can be an onerous task. Offering them a single point of contact that can facilitate this process and leverage economies of scale to offset some of the associated costs is huge. And these businesses benefit from financing to bolster their operation during the inventory hold phase, until they can start generating revenue,” she says.
In these instances, and in bridging the gap between the sale and receipt of cash, borrowing-base funding that leverages a debtors’ book or inventory, or asset finance that enables businesses to sell and lease back productive, unencumbered assets, can also present as ideal solutions.
Banach says that business owners can also leverage these credit lines for working capital to expand their reach, upgrade infrastructure, procure additional productive assets to generate more income or redeploy capital for growth. “We also enable businesses to tap ancillary lends to solve for additional challenges around operating expenses and cash flow constraints.”
Crafting the appropriate lending solution requires a commercial understanding so that it can be underpinned not just by financial measures, but also by the business metrics that influence on these and that the business uses to monitor their performance, such as selling price per item or units sold.
“As a business that aims to create high-touch, long-term relationships, Investec works closely with current and prospective clients to understand their unique requirements. This approach enables us to structure appropriate solutions that fund the businesses holistically. This is important to help businesses weather the extremely challenging operating environment we find ourselves in and find their footing in the new normal,” she says.
This article was paid for by Investec.
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