Member Article

How to get through the funding crunch – our experiences

I joined Maviga in July 2005 and it was clear from the start that this was a fast-moving and dynamic environment, writes Andrew Cooke, chief financial officer, Maviga International (Holdings) Limited.

The company had started in 1994, originating and supplying agricultural special crops around the world, and had grown every year at a good pace. On average the company had doubled in size every five years or so and we have managed to keep up this rate of growth ever since. Maviga has a long-term banking relationship with a major UK based global bank and they had provided finance for the company since incorporation.

So, as the incoming CFO, one of my on-going strategic objectives was to ensure that the availability of bank finance was always sufficient to allow the business to grow. We typically grow at an average of 10% - 15% per annum so a steady growth in facilities, to mirror our steady growth in balance sheet, would be required.

I can still recall a discussion with our bank relationship manager in early 2008 at one of the bank’s social events. Our business has been growing at a rate even faster than planned and I was sounding him out on the possibility of getting another significant increase in our facilities.

I was a little apprehensive as we’d only recently had a large rise a couple of months ago. His reaction slightly surprised me: “Ok, that shouldn’t be a problem at all. Is that all you need? If you need any more then just let me know. I have a few commodity clients and they are all doing good business right now…”. Great news, I thought.

Indeed it was. Our financial results had been strong; we had a long track record with the bank and also had a reputation for good financial control as well as delivering our business plans. A solid business and the extra funds were approved by a simple exchange of emails. We were even allowed to use the new funds before the formal documents for the new facilities had been sent out by the bank.

Later in 2008 we were approached by another major UK based, global bank. After a couple of exploratory meetings with us they arrived at a meeting in our office with a fully approved finance offer for us at exceptionally competitive terms. We’d barely done any negotiating but this was almost an offer we couldn’t refuse. However, as soon as we discussed the prospect of leaving with our incumbent bank they simply matched the terms to ensure they retained our business. Nice!

Then a massive change in September 2008. We were actually in the middle of discussing another increase in facilities when the credit crunch hit. Lehman going bust had sent shockwaves around the world but our experience with our bank was simply silence! Naturally we were affected by global events but our prudent business model, (back-to-back contracts to minimise risk) meant we continued to trade profitably. In fact our FY08 and FY09 results are some of our most profitable years and we have since appeared in the Sunday Times Profit Track 100 (2009 and 2010).

So we figured our bank probably had much bigger problems to handle than us. We chased the bank to set up meetings but often days or weeks would pass before they would reply to emails. Our highly competitively priced facility was just left to renew for a further six months before the bank made any meaningful contact with us.

Then it was clear things had changed dramatically. They appointed a new “Transaction Director” who would be part of their “Deal Team” and it became quite clear that he would actually be the main person to decide if we got new facilities. Despite the fact that our business was still growing strongly and was reporting very good management results, the bank now threw obstacle after obstacle at us to create an almost herculean task.

We were obliged (at our own expense) to have an independent audit of our debtor book. When this didn’t reveal any problems then we were required to have an extensive thorough external examination by one of the big four audit firms, again at massive expense to us.

They went through every aspect of our business from operations, business risks, financial controls, systems etc… and produced a large 104-page report that basically confirmed that the business was sound, well placed to grow and there was nothing to give the bank any concerns. We were amazed that the bank’s “Transaction Director” then insisted on having a long meeting with the reporting partner where he went through the document line by line, challenging lots of it and asking for some pieces to be reworded!

Eventually the bank gave us a new offer of finance. This included a massive increase in their arrangement fees and interest rate margin, and they also stated that they had reached an absolute cap on the amount they were willing to lend us. Accordingly we would have to find a second bank to co-finance the company if we wanted more finance.

Happily we have now done so and are co-funded by two major UK banks. It is interesting to note the different ways that they operate. Even in setting up the deal, our existing bank required external lawyers to be used (again at massive expense to us) and the whole process took over 6 months to conclude. However it is a very positive thing for the business that we now have some genuine competition and choice between banks.

Our business continues to grow (we have just appeared on the Sunday Times Top Track 250 list) and we are optimistic that the lending climate may be changing slightly. It certainly makes a pleasant change for our management team to devote more time to running the business than constantly dealing with problems from the banks.

This was posted in Bdaily's Members' News section by Maviga .