Money really does make the world of retailing go round. And it’s controlled by the banks along with other financial institutions that are all clever enough to make finance such a complicated subject that none of us, not even ’them’, fully understand it on all levels (including Gordon Brown, when he was Chancellor, goes the charge).
Understatement of the year: it isn’t all that easy dealing with banks these days.
Brian Madderson, chairman of RMI Petrol, says: "There are two issues with banks at present: reluctance to lend (overdraft and/or loan) and the high cost of card transactions, especially those on a percentage basis. In some cases, the cost can be half our total margin!"
It is a sentiment echoed by the Association of Convenience Stores (ACS). The organisation’s chief executive, James Lowman, says: "Our members tell us that their biggest problems in the banking sector are with bank charges, overdrafts and other day-to-day facilities being cut or inflated in price."
Aside from the ’charges’ for the service though, the other side of the picture is when you want the banks to invest in your business. Retailers understand that, to make money, you sometimes have to spend money to improve your offering. Banks, by their very nature, are in the risk business and they have been rather risk averse of late, so may take some persuading.
It doesn’t help, of course, that many of the banks’ customers no longer have a named person they can ring up or any personal relationship with their local branch or even a local branch.
But it does help if you have a good track record and if you approach your bank with a proper plan.
A varied picture
How open are banks to lending to small and medium enterprises? It’s a varied picture. Marcelino Castrillo, head of SME at Santander Corporate and Commercial, says: "In general, the market continued to decline by 4-5% in 2012; however, we have continued to grow our SME lending up 18% last year.
"At Santander we are very open to lending to businesses of all sizes and particularly to SMEs. We have been actively growing our Corporate and Commercial banking division since taking over Alliance & Leicester in 2008. Since then, we have grown lending to SMEs by an average of 20% a year, increasing our market share from around 1% to around 5%."
He says it isn’t just about funding: "We pride ourselves in taking a true relationship approach. The time that we invest in getting to know our customers’ businesses and finding the right solutions tailored to their needs, means we have been successful in attracting new customers to the bank year-on-year."
Understanding the sector
Another group with a lot of time for the forecourt world is Lloyds TSB. Mark Lodge, relationship director at Lloyds TSB Commercial Banking in the Midlands, says: "We have a thorough knowledge of how the sector operates, and our net lending is positive.
"Lloyds Bank lent £13.2bn to UK SMEs during 2012.
"Key to a lender is management while the location of a forecourt is undoubtedly important, a great site with poor management will rarely achieve its full potential.
"We see that consumers are increasingly demanding convenience in many facets of their lives, and this shift offers forecourt owners a sustainable opportunity. Location-wise there is little else that is more convenient than a forecourt, particularly one with good parking."
The sector, despite the challenges of rising fuel prices and changing consumer demands and shopping habits, has great potential, he says, but he adds that even a well-located site coupled with great management and a solid retail offering needs to have a plan in place well in advance. "Getting the mix of financing right is essential, and working with a bank like Lloyds TSB Commercial Banking that recognises how these factors interplay is equally vital."
How to up the ante
A strategic business plan is key when approaching your bank. Not only is a good plan essential for business growth, but it can help clarify and define long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check progress against.
"A business plan should not just be for the bank manager, but when it is being used to reinforce a lending application it should clearly show where the business is going. It should set out the strategy for the next two to three years, identifying priorities," says Santander’s Castrillo.
Show a good understanding of the local market, competition etc and show what space the business is looking to cover.
Be realistic don’t ignore threats and challenges and don’t over-estimate growth. Banks want to understand the risks and how owners will deal with them this demonstrates the strength of the management.
When applying for finance, work out how much is needed and apply for the whole amount including provisions for unexpected costs. This will look a lot better than having to come back later down the line.
Provide cash-flow forecasts, showing ability to repay. The bank is investing in your business show the bank what this investment will achieve.
There has been an interesting development lately, born of necessity, in peer-to-peer lending.
There are numerous websites that match up borrowers and lenders, bypassing banks along with their high costs and long processing times.
This new approach has had a number of high-profile endorsements from the likes of the Bank of England, the BBC and government.
And new research from charity Nesta says peer-to-peer lending could become responsible for more than 15% of the SME lending market.
Funding Circle, which The Telegraph calls "the leading example of a peer-to-peer lender to businesses", has helped small firms borrow £85m in the past two years. David de Koning, head of communications for Funding Circle, says: "A lot of businesses are disenfranchised with banks but they aren’t aware of the alternatives. We were the first model in the UK and the world (although it existed in the consumer market).
"We have lent £85m so far to 1,600 small businesses. We have 30,000 lenders registered and around half of those are active. We are internet-based with far fewer overheads therefore we’re much quicker.
"The whole reason we exist is that banks aren’t lending. Five players have 90% of all the small lending market."
De Koning shows a certain amount of sympathy for the big banks, which are being asked to increase capital flow, lend more, yet improve their balance sheets.
So does this ensure a fine future for peer-to-peer lending?
He says: "I think banks will get better but it will look different."
Funding Circle claims to be better for business loans because its lender auctions mean the borrower gets to choose the lowest cost loan available and it only takes two days to get approval. You can borrow anything up to £250,000 over one-, three-, or five-year terms. Once your loan is approved it can take as little as 14 days to have the funds in your account and the loan will be at a fixed rate with interest set between 8-9%. You can also repay early at no extra cost. To borrow from Funding Circle you have to be an established and credit-worthy business (no sole traders) and have two years’ worth of filed accounts.
Andrew Lawrence (right), managing director of Lawrences Garages which operates five sites in Norfolk, says it very much helps to have a long relationship with your bank. "Ours goes back to 1920. I’m fourth generation and the fifth is with us now. Barclays Bank has grown up with us. They’ve got a long list to look at when deciding they can see how we work. They understand the massive cash-flow fluctuation. It pitches hugely in a month."
He adds: "Any new manager requires a little training on how we operate. They do require input we have to explain it carefully and go through a rigorous build-up to any funding."
Andrew has had some luck with his current manager. "We’ve had the same manager now for 10 years. I see him twice a year in Canary Wharf and it’s a two-way thing. We do get ideas. It all comes down to communication. If things are going wrong be proactive."
Dear Mr Cameron
Brian Cracknell who runs Cracknells Garage at Thurston outside Bury St Edmonds was so ticked off at HSBC, his bank of some 50 years, that he wrote to Prime Minister David Cameron to complain.
HSBC decided to reduce Brian’s overdraft of £80,000 to £20,000 which wouldn’t cover the cost of a load of fuel. The remaining £60,000 was turned into a loan, so now he has to pay bank charges.
"This happened at Christmas, just when there’s next year’s tax due," says Brian.
The bank wasn’t interested in helping with the transformation of the showroom into a 1,500 sq ft convenience store so Brian invested his own money and the shop is now beginning to pay dividends.
And as for the PM, his office did reply and say his letter would be forwarded to the relevant people.
The day we spoke to Brian his bank manager had actually just rung to say that the business "looked like it was making progress". Brian thought ’Yes, no thanks to you’.
Smith’s smartened station
Lloyds TSB lent £1m to The Simon Smith Group last year. The former Forecourt Trader of the Year family-owned business runs seven filling stations across Gloucestershire and the Midlands. The company secured the funding from its long-term banking provider Lloyds TSB Commercial to redevelop its Daventry site and introduce a Budgens convenience store and the firm’s first Subway shop, creating 20 new jobs.
Brian Tew, director with the group, says: "Our relationship director Mark Lodge has a fantastic understanding of the forecourt industry, and the support from the wider team at Lloyds TSB Commercial has been instrumental in completing this landmark project to such a high standard."
Intake take in two new sites
Barnsley-based petrol station operator Intake Developments has purchased two petrol stations, expanding the family-run business to nine sites, thanks to a £600,000 term loan and £250,000 overdraft facility from Santander Corporate Banking.
The company has been in operation for over 40 years and is a shareholding split between parents John and Anne and their three children, Robert, Richard and Fiona.
It has a history of buying failing petrol stations and turning them into successful businesses.
Joint owner John Campbell says: "I’m proud of what my family has achieved with Intake over the past 40 years. We are grateful to Santander for helping us achieve our goals and, as always, are impressed with the knowledge and experience of Andy Stobbart (relationship director at Santander) and the rest of the team in Sheffield."