Debt and Equity_ A match made in heaven. The Banker's perspective - Kevin Kingston_ Northern Bank by xiaoyounan

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									Debt and Equity                  A Match Made in Heaven?
Kevin Kingston
General Manager             Corporate and Markets
Northern Bank

Wednesday, 26th May, 2010
Presentation Overview

§   Impact of the Credit Crunch


§   The role of the Bank


§   Approaching the Bank




                                  2
Impact of the Credit Crunch




  The UK economy is emerging from a severe downturn into a
 credit-constrained world. As bank lending recedes to more
 appropriate levels and uses, a great deal of equity investment
 that may have previously been crowded out by risk-loving
 banks could now resurface.



               Source   Improving Access to Equity Finance   ACCA SME Committee

                                                                                  3
Ease of Obtaining Types of Finance
December 2008 vs December 2004



Commercial Loans




          Overdraft

                                                                                                                Easier/Unchanged
                                                                                                                Harder
Invoice Discounting                                                                                             Substantially Harder




       Leasing/HP



                      0%            20%             40%               60%           80%             100%


 Source   SME Finance and Innovation in the Current Economic Crisis   Centre for Business Research, University of Cambridge (2009)

                                                                                                                                       4
  The Role of the Bank

                                  Financing Need



                   Internal                              External



                                     Grants              Bank Debt         Equity


                      Internal Funds          Bank Debt              Equity
Cost                  Low                     Interest               Dividends
Risk to Business      Low                     Medium/High            Low/Medium
Ownership             No Impact               No Impact              Dilution
Involvement           N/A                     Limited                Required
Security              N/A                     Required               Rarely

                                                                                    5
The Role of the Bank

    Early Stage       Growth              Maturity     Decline




£




                                                                 Time
          FFFF

           Business Angels

                     Venture Capital/Capital Markets

                                 Grants

                                       Banks

                                                                        6
The Role of the Bank


             We are looking to fund a growing
             business    proven product with a
             commercial application



             We re not there to be a cheap
             substitute for equity



                                                 7
    The Role of the Bank              Risk and Reward

§   What is the Bank being asked to
    fund?

§   Are there cashflows being
    generated from that investment?

§   Are the cashflows fairly stable
    and predictable?

§   Are the cashflows available to
    service debt now or needed
    elsewhere?


                                                        8
The Role of the Bank    Risk and Reward



   Banking Risk for a
    Banking Return


          vs


   Equity Risk for an
    Equity Return



                                          9
Approaching the Bank   Tips and Advice

                          §   Prepare a good Business Plan

                          §   Address the key risks    it will
                              help the decision making
                              process

                          §   Skin in the Game ?

                          §   Remember Banks focus on the
                              cashflows

                          §   Think about available security

                          §   Emphasise track record

                                                                 10
Approaching the Bank                If the Bank says Yes


 Agree the terms and conditions


 Get them in writing (and read them)


 Stick to the rules and keep your
 promises


 Keep the Bank informed




                                                           11
Approaching the Bank   If the Bank says No



                        Find out why?


                        Clarify misunderstandings


                        Can it be reworked?


                        Try another Bank?




                                                    12
Approaching the Bank                 Things to Ask the Bank




§   How will your account be managed going forward?

§   Range of services? Are the services available locally?

§   Does the Bank offer the services you will need as the business grows?

§   Electronic platform and cash management?

§   Costs and charges?

§   Structure of funding being offered?


                                                                        13
Cash Management - View our Online Demo
www.northernbank.co.uk/demo




                                         14

								
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