• Rob Haynes

“A ship in a harbour is safe, but that is not what ships are built for”


The above quote is used in an advert by one of Australia’s ‘Big 4’ banks. I’m sure that most are familiar with the advert, which features a woman and man in a restaurant debating a significant business decision.

I actually like the advert, it highlights the vulnerability of business owners and the immense risk that they take-on when they are faced with a significant business decision.

Last week I was talking to a business owner and they raised the advertising of banks. Whilst they did not specifically raise this advert, they were referring to adverts from banks generally that indicate that "ABC bank is setting aside x-billions of dollars for lending to business".

This particular business has been under development for 6-years. The owners have invested a significant sum (more than 7-figures), they have accessed government grants, they have sales orders and assumed that they would be able to take their business plan into their local bank and secure funding. They quickly found out that this was not the case.

I won’t go into the nature of the business, or the owners’ financial position here because that is not the point of the article. Suffice to say that the owners have invested all of their net worth into the business and to quote them, they are ‘hocked to the eyeballs’.

As a result of the above discussions, the owners found themselves in a difficult position. They have spent the last 6-years developing the business and have put all of their assets on the line. At the ‘11th-hour’ they have discovered that they are unable to access the final funding to kick-start their sales.

Going back to the ship quote, "they have left the harbour however only to discover that they don’t have an engine".

This should not be read as a criticism of the banks. Whilst banks could be considered conservative, they are highly regulated to protect shareholder funds and they have developed their lending parameters over many years. It is widely acknowledged that the strength of the banking industry assisted the economy as a whole during the GFC.

My issue is the lack of direction that is provided to business owners in these circumstances. When they approached the banks, they were simply told that their request did not fit the banks requirements – and they were sent on their way. The reality is that different funding is often available to suit businesses as they grow. This funding ranges from investor equity, through to traditional debt.

Out of desperation, they spoke with their lawyer who referred them to us – fortunately their lawyer knows that other funding solutions are available and the law partner made the introduction.

We had an initial discussion with the company. As a result of this conversation, we prepared a summary and presented it to a company that specialises in start-ups. They have expressed an interest and we’ll now provide more information.

The next steps will be to help the company develop an ‘investor-ready pitch’. To date, they have been using their business plan (which is well prepared) however; it does not capture all points required by investors or lenders. The investor pitch will be presented to a number of groups that specialise in new company investments.

For me, this situation has highlighted the fact that the various ‘layers of capital’ (from equity to debt) are not well integrated – each segment operates largely within their own market space, sometimes (unwittingly) to the detriment of the client.

This example has highlighted the opportunity to get each of the capital layers better integrated. There are significant business benefits if equity and debt providers work together to support businesses through various stages of their lifecycle.

Integration can only come from increased use of specialists who can take an objective view of the businesses specific finance requirements, and a strong understanding and connections with all sectors of the finance market.

#BusinessStrategy #BusinessFinance #BusinessFinancePerth

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Proteger Financial Solutions

Home Loans and Business Finance Perth

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