This article is taken from the April 2022 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

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I often say that when I grow up I want to own a bank. I can even understand the business — sell money and secure the risk against your customers’ assets; use other customers’ money as assets to lend out; pay a pittance as interest; do not get out of balance with the proportions. Also, wear chalk-stripes and smoke cigars. I manage some of these already. 

The buying of money and its opposite, the custody services, are essentially commercial commodities using what should be simple business models. This should lead to continual competitive stress. 

Personal attention in private banking is expensive and rightly costs more for good service, but it frequently surprises me how poor the banking relationship is in corporate affairs, especially with SMES where one might expect similar attentiveness. 

However, the administrative awkwardness you will have experienced opening a personal account is magnified in the corporate sphere and leads to a similar protective stickiness for banks over their customers. The key to a successful loan book is not so much the lending of it but whether your debtors have the ability to pay back.

Whilst banks’ internal credit committees and ratios are important on a macro level, of greater importance is knowledge of the cash generative robustness of each debtor. To understand this at company level takes greater effort and I have often seen lenders pull loans from struggling businesses too hastily. 

One way to deal with having an unsympathetic bank is to have more than one of them in play

Given that the propensity to overspend is as commonplace in business as it is with individuals, I am perhaps expecting too much of bank managers if I urge them to spend time understanding a business as a non-executive should. There is usually, as a business finds itself in cashflow difficulties, a stage before despairing — before its liquidation or the cupboard-searching of an Administrator — when pressure for change can be made. 

Banks should act more like activist investors; in other words, intervening earlier. Very often they do not bother, but if you ever read a commercial mortgage or debenture, you’ll learn they have the power to do so. 

In late January 2020, Norton Motorcycles went into administration. Stewart Garner, the entrepreneur who rescued the historic brand from Californian obscurity and was manufacturing very impressive bikes, told me he was having issues with Metro Bank, a medium-sized lender with its own well publicised problems. 

He also owed the taxman. His EBITDA was positive and his sale book almost too large for production capacity. What he needed was time for an underlying healthy business to trade out of a cashflow constraint. But time he did not get. 

I forwarded the tip and some figures to one of our local billionaires, who is a petrolhead. He passed on it, for whatever reason. Now the company is Indian-owned but at least 100 or so jobs and a great British brand were saved. 

Maybe a concerned lender could have intervened earlier and demanded the sort of changes that might have avoided jeopardy. I do not know the details but suspect that the bank was in urgent need of its money and did not have the inclination or patience. 

What saved Norton was that it is a great brand and had a product range. It needed refinancing, rather than the restructuring of its production or sales. 

As a business owner one way to mitigate the problems that can come with an unsympathetic and impatient bank is to have more than one of them in play. We do, but then we are a conglomerate with a spread of assets that can be siloed to lenders. 

Floating charges are also best avoided. This approach paid off when we were supplying two helicopters to the Nepalese government. The money to buy them was gifted from DFID, but it was a complicated deal that had taken nine months to put together.

We had kept HSBC fully appraised. When it came to approving the letters of credit so that we were paid, a committee in the bank gave us the thumbs down, citing that these choppers were demilitarised and could, in theory, be weaponised again. (They were Russian machines — so this was not a deal that could be repeated today.) 

Little value was given that they were to be used for search and rescue missions. With less than 24 hours before delivery, time was critical and we were about to be left very exposed. NatWest appraised rapidly and put the paperwork in place. It cost us a princely sum, but the deal was saved. 

Unfortunately, a Nepalese pilot crashed one of them within a month. But we did get paid.