The pandemic has changed the way many businesses operate and, in turn, this has impacted what organisations need from their funding partners, says Deepesh Thakrar, senior director of debt finance at OakNorth Bank
The events of the past 18 months have changed the way many businesses operate, and as a result, what many are looking for in their funding partners going forward. In the short term, the UK government’s strategy was to try to limit the number of businesses failing and jobs being lost because of temporary liquidity pressures caused by the pandemic, so we saw unprecedented levels of fiscal stimulus. However, this can’t go on forever – over the next several months, government support initiatives will be unwound and come to an end. This will lead to a cliff edge, dividing businesses into two streams: those which are going to surge ahead and do well in the recovery, and those which unfortunately are going to struggle. It’s therefore vital that CFOs and financial directors have a funding partner that understands their business and is well-positioned to support them through the difficult months and years ahead.
Over the past 18 months, OakNorth has lent over £1.5bn to businesses across the UK, and from our conversations and experiences with these businesses, we’ve captured the top three elements CFOs and financial directors say their peers should be looking for in a post-pandemic funding partner.
1. Speed
In the months and years ahead, there will be several opportunities for businesses to expand and grow, but many of these will be time-sensitive, so CFOs and financial directors should choose a funding partner that is able to complete transactions in the timeframes required and offer quick “yes” or “no” decisions.
This will enable them to plan accordingly and avoid the opportunity cost of having to wait months for an answer. At OakNorth Bank, we’re proud to complete transactions – from first meeting to cash – in 40 days on average and offer indicative terms within 48 hours, so that management teams can get back to running the business, rather than trying to secure a loan.
2. Granularity
Most banks tend to lump all businesses into one of a dozen or so categories – for example, food and beverage, travel and tourism, lodging, and recreation are all classified as “hospitality” – which disregards the fundamental differences in how these businesses operate. There are numerous sub-sectors in hospitality – within lodging for example, there are aparthotels, serviced apartments, airport hotels, business / conference hotels, resort hotels, countryside boutique hotels, etc. Each of these will have had a very different experience throughout the past 18 months and will be facing different challenges in the future.
Equally in recreation, the experience of a golf course, which takes place outside and, therefore, will have seen most restrictions lift months ago, will be very different to an in-door climbing centre which will have only been allowed to reopen recently and likely has to spend more on PPE, air conditioning, extra cleaning, etc. It is therefore vital for CFOs and financial directors to ensure they choose a partner that understands this and is willing to build a sub-sector, granular credit picture of their business, rather than offering an off-the-shelf “solution” or ready-made product.
3. Flexibility and a bespoke approach
When it comes to loans for the development of a new building such as a hotel or mixed-use scheme, most lenders will typically make the borrower take out a facility to acquire the site, then a development facility to build it, and then they will have to refinance it if they want the capital to run it. This process is time-consuming and frustrating for management teams – especially the CFOs and financial directors – as it means they’re constantly having to interrupt their plans to get more capital from their bank.
Due to our expertise across both property development and SME trading deals, OakNorth is able to create a bespoke financing solution for the whole process, enabling the business to buy the site, develop the scheme, and depending on the type of business, cover the initial costs of operating it, and we can extend it over a five to six-year term.
As Fabio Longo, Managing Director at Bain Capital said earlier this year following a loan we did with them: “The team at OakNorth Bank were able to put together a single facility that captures both the acquisition and refurbishment of the hotel, allowing us to focus on the repositioning of the assets, and move quickly without interruption.”
This type of facility needs to work for both the lender and for the borrower, so typically interest payments will be higher during the initial buy and build / development phase. They will then reduce once the borrower completes the development and the hotel or scheme is operational, and then reduce again once it hits its forecasted numbers. By covering buy, build and stabilise under an agreement with ratcheted rates, the borrower cuts out the need to spend time refinancing once a new hotel or scheme is built out.
