A better understanding of risk can unlock finance

Often knowledge remains with the founders of SMEs, not the management
For British manufacturing firms seeking finance, a return to the lending practices of 30 years ago, when decisions were based less on financials and more around “common sense”, may be welcome news.

This is according to Mike Hartley, head of commercial credit north at Santander, who says that lenders are now looking more holistically at manufacturing firms and not only at the P&L.

Alongside Santander’s credit partner Rob Lapper and head of manufacturing Charles Garfit, Hartley was hoping to demystify bank lending in a workshop with a group of SME manufacturers, held as part of Santander’s Breakthrough Box Live festival in Cardiff last week.

When working with bank relationship managers, his advice to manufacturers was to focus on understanding risk in the business, and to build a strong management team.

“You need to give the banks confidence that you understand and are managing risk effectively. Manufacturing isn’t a simple model, so a bank needs to know what it is about your business that got it this far and what might happen in the future in detail,” said Hartley.

He added that, for many SMEs, this knowledge remains with the founder of the business, and isn’t passed down to management teams, who ultimately are the ones who deal with the bank’s relationship manager.

“We don’t expect a business to be perfect, but it all comes down to communication,” said Lapper. “We know you can’t nullify all the risks, but how will you manage them?”

“It’s important to ask: are the managers fully informed to brief a relationship manager on all risks?” Hartley asked. “The ups and downs that a founder inherently deals with – that seem so obvious internally – are often not communicated to the bank. They are what the bank needs to know.”