Managing financial costs

Situation:

The client had been witnessing steady growth in business and were expanding in terms of geography and production capacities. They had almost increased their Bank exposure by three folds in last two years. They were amidst a growth spree and required further finance to keep pace with the demand and capacities. However the existing banker was a little conservative given the steep increase in exposure, Dilution of collateral besides other internal constraints. The company was getting good offers from competition and had to take a decision as early as possible.

Methodology:

We reviewed the Coy’s business Plans for next 3 years and accordingly carried out assessment of their financial requirements.

Also we did a mapping of their industry / business Model visa via alternative Banks/FI’s.

Solution offered:

• We found that the existing Bank was one of the best alternative and there was enough reasoning not to leaving the lender.
• However the business unit in the Bank with whome the client was engaged was not equipped to handle the size which the client had attained in last 3 years.
• The Bank was comfortable to increase the exposure given part of their lending is shared by another bank/FI.
• The management was convinced with the idea of Multiple Banking arrangement under which they could avail credit facilities with two Banks simultaneously.

Key take away:

When an SME business grows; after attaining a certain size its requirements also undergo change .At such a time they need to change their financial structure or seek for alternatives which commensurate with their long term goals.