Bank Borrowing
I worked for 25 years in Corporate Banking and received the very best training from experienced old-school bankers, in-house courses, passing my professional exams and through managing a large portfolio of business customers.
The Credit Crunch has exposed the weaknesses of many bank managers and the ‘sales culture’ that has been established by most Banks. In 2001, I opted out of this toxic culture because I believed that the Banks would pay a heavy price if they under-valued the risk management skills required by their lending managers.
I believe Royal Bank of Scotland and Bank of Scotland were driven into insolvency by this culture as bonuses have been paid for unsustainable short-term performance. Frankly, the Banks have let down their good small business customers through lack of integrity.
I will briefly explain to you how a Banker should view a lending proposition for a business so that you can prepare your bank proposal for success.
If you want some help with your Banking proposal or Business Plan, then contact Mark for assistance. Whilst Banks are currently scared to lend, you need every advantage you can gain!
CAMPARI
| CAMPARI | Character, Ability to repay, Margin of Finance, Purpose, Amount, Repayment terms, and Insurance (bank lending model) |
| CAMPARI | Character, Ability, Means, Purpose, Amount, Repayment, and Interest (bank lending model) |
In the early 1980s I had the dubious pleasure of spending three years working in the credit risk team of a major clearing banks when the West Midlands manufacturing base was being reshaped. During that time, I came across a number of techniques that are used by banks to appraise new lending applications.
One rule of thumb was spelt out by the acronym CAMPARI. To a lending banker, campari is not something to be sipped at a summer garden party, but a mnemonic guide to lending decisions.
A banker will initially look at the Character of their customer. Is this a person of honesty and integrity? How long have they been a customer? Has it been a good working relationship?
What is the customer’s Ability to repay the loan and to run a successful business? Is it growing profitably? Is working capital being managed successfully? Is the business generating cash? Has the customer delivered on their business plan and been able to adapt to changing market conditions?
What are the customer’s Means? Does their business have significant net assets – how does this commitment compare to the amount requested from the bank? Are profits retained in the business? How much have the owners or shareholders invested in the company? Are the shareholders or owners wealthy in their own right?
What is the Purpose of the advance? For example, is it being used to fund the purchase of product for stock or is there a specific customer deal? Is it to be used for capital equipment or working capital or to cover trading losses?
What is the Amount required? This sounds like a straightforward question, but quite often customers did not really seem to know how much cash is needed and where it would be used. Are you asking for too little or too much? You usually need to support your proposal with a budget or forecast.
What is the Rate of interest payable? Is the bank being asked to match a very thin margin? Is the return commensurate with the risk?
What is the Insurance (security)? This is the Bank’s cushion of safety if the unexpected happens or the Banks judgement is impaired. Security can take many forms such as personal guarantees, charges on land and buildings, stocks & shares etc
To summarise:
It is likely that you will have good answers to some, but not all, of the questions above.
So how do you ensure that you get a proper chance to present your case to the bank and explain your way around some of the weaker areas? Even if you get a very good hearing from your relationship manager, the final decision on a new facility may well be made somewhere within a central credit team.
Therefore, if you do not present your own business plan or funding document, you will be entirely dependent on the managers notes. Are you absolutely sure they really understand your business and your prospects? Do you know how good their written presentation skills are? How good a reputation do they have within the bank? Is their judgement trusted?
I would always suggest preparing your own business plan or funding document and it should be succinct – it is possible that the person reviewing it in central credit will have 10 others to review and decide about on the day that yours arrives.
The key point is that by supplying a robust business plan you can be sure your case is presented in the best possible way, to whoever is involved in sanctioning your proposal.
See ‘Business Plans‘ to see how to prepare your business plan.
3 Key Criteria for the Bank Manager:
1. Who is the borrower? i.e. your track record, credit standing, experience, integrity and trustworthiness are vital considerations. (Almost nothing else matters, because if all goes wrong the right type of customer will take responsibility and dig themselves out or report the problem before it becomes terminal.)
2. Your ability to repay – determined through study of your past performance and financial projections.
3. The security position (or insurance) i.e. if the plans go wrong, how do I get repaid?
The ‘COLD’ Approach 
Here is another model for assessing a Bank proposition:
The Business Environment
Management
Financial Management Evaluation
- Capital Structure
- Operating Performance
- Liquidity
- Debt Service
Projected Financial Condition
- Projected COLD
Requested Facilities
- Amount
- Purpose
- Repayment
- Term
- Margin
Insurance
- Security
- Covenants
- Insurance
