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To Lend or not to Lend!

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Whilst a popular drink back in the 70’s, funders still follow this acronym to help them assess loan applications.

To lend or not to lend – underwriters use CAMPARI and ICE to help them assess the risk and support the decision-making process. For clients / borrowers, it’s a good checklist that will help to ensure that you are prepared and have gathered all relevant information / documentation to support your application.

Trading companies applying for funding are likely to be asked to provide a detailed Business Plan. We can help you put together a strong proposal and tailor it to the requirements of the funders; they all have their preferences.

Character

  • What’s the Company background & track report?
  • Does the Company have a healthy history of cash generation and debt servicing?
  • Can the Company / Directors reliably demonstrate a clear ability to repay the loan?

Funders will carry out intensive checks and regularly call on Financial Due Diligence experts to assist them. So you will need to be well prepared and ready to explain the full business background, highlighting all skills and experience. We can help make sure you bring out the most appropriate supporting information for the Company and the Directors / Senior Management team.

Ability

  • Are the Directors / Senior Management team capable and successful?
  • Leading and running the Company – key highlights and learnings
  • Do the Directors / Senior Management team have any specialist and/or general commercial experience?
  • Do the Directors / Management team have any relevant qualifications?

Be prepared to provide the funder with some recent examples of what the Company has achieved under your leadership to support and evidence track record / ability.

Means

  • Provide copies of the last 3 years Accounts and latest Management Information.
  • A detailed 3–5 Year Forecast will be requested / well received.

On occasions funders may also request a breakdown of the Directors / Shareholders personal assets and liabilities to show what has been accumulated over the years. (It will also give an indication of any possible additional security that might be available or alternative income streams).

Purpose

  • What does the Company require the funds for; a new opportunity or refinance existing facilities?
  • To support working capital / trading requirements?
  • To help buy new plant & machinery?
  • To support growth / acquisition plans?

Amount

  • How much does the Company need to borrow?
  • Funders will want to see justification for the loan amount. The Company will need to show that it is sufficient and has strong headroom.
  • Be realistic – prepare a breakdown to demonstrate the requirements.

Repayment

  • How strong are your cash flows and what are your plans for the future; all will impact on the viability of the facility you are seeking.
  • Commercial loans tend to be offered on a capital and interest repayment basis. The repayment will ultimately come from the retained profits and cash generation of the business.
  • Therefore, the funder will focus on the past years’ profit and loss performance and will also consider forecasts to assess and evidence the ability for the Company to comfortably service the debt.

Insurance

  • What security is potentially available?
  • Funders will always look towards the quality of the assets in the Company Balance Sheet.

And….

Interest

  • At the start funders will often provide indicative terms with details of the proposed Interest rates.
  • Once approved exact rates will be confirmed within the formal offer documentation.

Commission

  • Funders usually charge a fee for arranging the facilities, which is typically based on a percentage of the total facility amount – this is often determined by their risk-weighting and deal complexity. All fees and any other charges will be detailed in the formal offer documentation.

Extras

  • This usually means insurance, e.g., product/service, plant and machinery, buildings, contents and public liability before moving onto key person and shareholder protection; all the policies you need to ensure that you and the funder are adequately protected should anything go wrong.

So this 70’s acronym can be used as the basis for most lending requests. Being organised / prepared in advance of submitting an application can really help to assist the funders deliver a positive and timely decision.

To lend or not to lend … hope the CAMPARI & ICE delivers for you; cheers!