West Midlands businesses may need to take steps to manage lender relationships more effectively to secure a safe and profitable path through the economic downturn, according to experts at Pricewaterhouse Coopers.
Lender behaviour has changed significantly over six months, since the onset of the credit crunch, and according to the firm’s corporate finance team some local companies are only now coming to terms with the extent to which this affects them.
Matt Waddell, head of corporate finance at Pricewaterhouse Coopers said: “In the early months of the crunch, it was not unusual for small and medium-sized businesses to feel that lenders were making them pay for a crisis that began as a problem affecting the sub-prime market in the US. However, they quickly learned that this was getting them nowhere.
“Since then businesses in the region have re-examined lender behaviour and have become more resourceful in a bid to secure the necessary financial investment to fund their business strategy.
“One of the most significant changes in lender behaviour is the tighter lending criteria – many lenders are no longer happy to test a company’s ability to pay back a loan based on cash flow projections. For businesses, this means they may need to approach their bank manager differently and be prepared to back up financial bids with hard evidence of business value.”
According to Pricewaterhouse Coopers, businesses that are likely to do best during the current economic downturn are those that can demonstrate robust business performance and win the confidence of lenders. For businesses considering a corporate transaction, this may mean taking a more lender-friendly approach to deal structuring.
Mr Waddell added: “We are seeing a flight to quality among lenders, as they select the most defensible investment opportunities. As a result, businesses and their private equity backers may need to consider asset-backed means of deal structuring such as asset-backing or invoice-discounting.
“For those that succeed in securing the required bank finance, the potential rewards are great. History shows that deals done in a sliding market often prove to be the most rewarding and while a slowdown in activity is likely, we are expecting the private equity market to remain active in the Midlands.”