In a recent chat about marketing with brand & marketing specialist Francoise Garnier (Garnier Marketing), it occurred to me that the obtaining finance is in essence about marketing your business. The difference is that your “customer” is the bank.
Do I hear a chorus of “Hang on a minute! Isn’t my business supposed to be the customer of the bank, not the other way around?”
Well, that may well have been the case in the pre-Global Financial Crisis (GFC) years when credit disciplines went out the window and banks were just about throwing money at any borrower as long as he/she/it breathed. However, that party is over. Banks still want to lend (that is, after all, a core business activity!) BUT they are being much more selective as to which businesses they provide finance. It’s a flight to quality – credit quality.
In this post-GFC era with still much global economic uncertainty, Small & Medium Businesses (SMBs) need to actively “market” themselves as being a quality credit and maintain their “brand” as a high quality credit.
Do both and you’ll be able to access financing required to drive your growth plans. It will also eliminate the frustration of seemingly endless requests for more information from the lender. It can even engender support from the lender for a business which has gotten in trouble and is working on turning itself around.
Do both really well and you will even find lenders competing for your business! Wouldn’t it be nice to have a host of banks bending over backwards to be your financier?
How to Market Your Business as a Quality Credit
Think of the financing process as a marketing campaign to convert the target “customer” (the bank) into a “buyer”. Actually, the lender-borrower relationship is more akin to landlord-tenant relationship: businesses in effect “rent” the balance sheet space of a lender. So you could think of it as marketing yourself as a great “tenant”.
Space on a bank’s balance sheet is a scarce resource in this post-GFC world. There are still many dark clouds on the horizon with the European debt crisis, the weak US economy etc.
What type of “tenants” do banks want? “Good tenants” (borrowers who are high quality credits) are those who are likely to pay “rent” (interest) on time and “hand back space” (principal repayments) and meet all other obligations in accordance with the “tenancy agreement” (loan agreement). Having to “evict” tenants from the balance sheet is a costly exercise. Would you rent out premises to a potentially problematic tenant?
Marketing your business as a quality credit is done with a financing proposal. Don’t just send in a bunch of financial statements to your current and/or prospective lender(s). The numbers are meaningless without context and thus worthless in communicating what makes your business a sound credit risk ie your “credit brand”.
The contents of a financing proposal are largely similar to what you would find in a business plan. [You can download a copy of my Generic Information Request List which shows the usual information required to put together a financing proposal.]
To make your proposal an effective “credit marketing” document, the “story line” must be framed in such a way that it demonstrates and reinforces the fact that your business meets the 4 C’s of Credit:
- Cash Flow
I have discussed these in How To Prepare Effective Finance Proposals.
Optimism in finance proposals: “Half glass full” is ok. “Pigs fly too” is not.
By story line, I don’t mean fluff or puffery or “feel good/touchy feely” stuff. Skip the passion – it’s a bank you are talking to! This is a dispassionate analytical marketing document which involves setting out and substantiating facts about your business. For example, stating that your business achieves above average margins in its industry or market should be backed up with relevant comparative benchmarks.
If there have been blips in performance, don’t gloss over or ignore them. Explain why the blips happened and more importantly, WHY they won’t happen again.
There will be areas in the “story” where subjective judgements and assumptions are involved, in particular with forecasts. The key is to present a convincing argument as to why your assessment or interpretation of the ‘subjective’ issue is the valid one. It’s about “half cup full”, not “pigs fly too”. For example, if you say that forecast sales growth will be 20% because you have a new product, do you have a track record of successful new product launches or do you have market research or signed contracts or some other evidence that this is the likely to happen? This is why all forecasts must include clearly stated assumptions and convincing arguments as to why these assumptions are not based on wishful thinking.
This “marketing” exercise should also be done at the time of each annual review of your facilities. It ensures that YOUR story is maintained on the bank’s files and changes in your account or relationship manager at the bank doesn’t result in having to re-educate your new manager about your business.
How To Maintain Your “Brand” As A Quality Credit
A brand is essentially a promise of certain identified qualities or core values. Consistency in delivery of those qualities or core values is absolutely vital in branding.
The “core values” of a quality credit are summed up in these 2 statements:
- “Always meets obligations as and when they fall due”, and
- “Would not enter into any commitments he/she could not fulfill”
The first “value” is not just about meeting financial payment obligations such as interest and principal repayments. It’s also about providing financial and other reporting in the agreed format at the agreed times. In respect of reporting, don’t just send in a bunch of financials. Add a brief report that puts the numbers in context and your expectations of how the business is tracking to budget/forecasts that were previously provided.
There will be times when the unexpected happens in your business which cause a hiccup in cash flow. If you have good cash flow management processes in place, you should be able to anticipate the problem before it actually hits your bank accounts.
Banks hate surprises at the best of times. Constantly overdrawn accounts or missed loan repayments will have your business constantly feature on their exception reports. That’s a recipe for damage to your “credit brand”. Not a good thing to do in this volatile economic climate when the banks’ credit radars are highly sensitive to potential problems.
However, they will be more likely to be receptive to requests for a temporary increase in overdraft, a restructure in your financing arrangements or other arrangements as long as you tell them well in advance – and have a good “story” to go with it.
D-I-Y Or Outsource Your Financing Proposals/Review Submissions?
At the end of the day, a well-managed financially sound business should have no problems maintaining a great “credit brand”.
However, the nature of banking staffing structures is such that bank managers working with SMBs often have anything upwards of 100 businesses that they are supposed to service. The individual SMB is thus not going to get the time and attention from his/her bank manager to really understand the business, its needs etc. It’s physically impossible for the bank manager, however much he/she may wish to do so.
SMBs thus have to put in the effort to actively “market” their credit quality to achieve the desired financing solutions. As the old saying goes:
If the mountain won’t come to Muhammad, then Muhammad must go to the mountain.
The preparation of a financing proposal or an annual review document does take time, a scarce resource for most SMBs. However, it is worth the effort to do this properly and will save a lot of time and frustration as it eliminates a dragged out credit approval process with what often feels like endless questions from the bank.
If you are thinking about outsourcing this process of preparing your financing proposals (or annual reviews), make sure that the consultant or broker you appoint for the project is actually going to prepare a good financing proposal that properly “markets” your credit; not just go around distributing copies of your financials to any and every financier.
Contact me if you have any questions about preparing an effective financing proposal.