Mark Levey, operations and finance director of UK-based Sells Goalkeeper Products, speaks to GTR about banks’ unachievable lending requirements. Michael Turner investigates.
As Sells Goalkeeper Products’ finance director and one of the company’s founders, Mark Levey is at the forefront of dealing with the business’ trade finance issues which, he tells GTR, have been all too plentiful: “There is definitely a lack of appetite for risk amongst banks, it’s totally noticeable. The banks have made the hurdles too high.
“We had to change our business model and one of the reasons was because even though we had orders for our products from all over the world, the banks made security requests much too high.”
However, when asked if the higher security measures might be a necessary tactic to ensure banks do not take on too much risk, and to avoid a repeat of financial crisis, Levey comments: “They are requesting all of the financial information that they should have been asking for before the recession which is not a problem, but now, despite going through all the due diligence on all domestic and overseas businesses, some banks want one and a half times cover on what’s being loaned. This means that a £10mn (US$15mn) loan is probably going to need £3mn (US$4.6mn) working capital, and what SME is going to have that sort of money sitting around? That’s where there’s a mismatch between what banks say publically and what they are actually doing.”
A struggle to meet certain criteria is not the only problem that Sells has had to contend with, there has also been a number of rises in fees, as Levey explains: “There are subtle changes, like a 1% arrangement fee is now 1.25%. Another thing that some banks have started doing is issuing £250 (US$381) fines if certain documentation is not produced by a specific time. This is applicable to each document. For the less diligent businesses that maybe don’t have a full-time team paid to check up on this, they can suffer. “It is the smaller companies who make this mistake and considering that only 1% of UK companies turnover £1mn (US$1.5mn) or more, there are a lot of businesses that do not have sophisticated systems to ensure that they do not get caught out.”
As well as goalkeeper products, Levey also operates Adkat Distribution, a business that supplies electrical goods to major retailers in the UK. By securing such a strong list of major retailers, Levey felt sure that Adkat would be capable of getting through the current tough economic times.
However, it is the size of the retailers that has proved a hindrance rather than a blessing, as Levey explains: “At Adkat, we have run into problems we were not anticipating. The problem we have is that we have got to use a type of financing, based on invoice and supply chain, which banks do not want to do. This means that we have to go to smaller banks with higher rates.”
The problem, Levey says, is that during the depths of the UK’s recession, major retailers were managing their debt in such a way that if their suppliers went bankrupt, the major retailers used complex debt instruments to write-off large portions of the debt they owed to banks for received goods.
This has led to a number of problems between banks and major retailers, with SMEs such as Adkat caught in the middle.
“Some banks are seeing their customers run into growth problems because the banks won’t let them bring up debt against these major retailers because of how the major retailers behaved in the recession. One organisation has even said that I can have the loans I need but I have got to take out insurance. It’s incredible that I have to take out insurance on the biggest retailers in the UK. My margins have already gone from 15% to 11% and now banks want to take another 1% in insurance,” Levey notes.
The conclusion that Levey has drawn is a worrying warning to other SMEs with aspirations of working alongside the UK’s big players: “If I had a customer book that consisted of companies that were not the biggest retailers in the UK, then the banks would probably provide the financing. As it stands, the biggest retailers have as much money and legal teams as big as the banks’ so the banks do not want to take them on.”
Indeed, the issues that Levey mentions are all set against traditional problems that exporters face, such as sourcing reliable overseas customers and suppliers. The most pressing problem is the lack of a global standardised credit rating system, as Levey mentions: “I don’t know what other people are doing, but we have always found it incredibly difficult to get good credit ratings (of potential suppliers and customers). To be honest, the banks and government need to do a lot more to get good systems in place. As a minimum, there needs to be a standard way of reporting accounts, but there is a lot more to be done.”
Levey remains sceptical that the British government can provide SMEs with the assistance they need, and at reasonable prices: “We have used the government [to source potential overseas suppliers], but it was a complete waste of time. Times are changing, and we found it quicker and more cost-effective to go on the internet. When we spoke to the government, they came back with an estimate of £2,000 (US$3,129) per country for due diligence. After we added to that our costs of flying out to the countries to meet people and everything else that comes with it, the total would have been around £8,000 (US$12,500).
“Instead, we got on the internet and managed to contact companies in Latin America directly. We used a free internet translator service to write an inquiry email in Portuguese and Spanish and we performed our own due diligence around that. We’re at the final stages of the deals now, but instead of costing us £8,000, it cost us three days at the computer.”
The story is not all negative though, and there are some institutions that are showing innovation in the products they are offering to try and encourage real economy growth. Santander is one of the banks that Levey praises for its take on providing solutions in the current climate: “They have recognised the problem and flipped things on its head by doing supply chain finance, which some people call reverse factoring. I’ve heard that some of the other banks have got some helpful products coming out too.”
“I have a love hate-relationship with banks, though I can’t help but feel that if I was turning over £100mn a year, the banks would not doubt be able to help me.” GTR
Sells Goalkeeper Products is a decade-old business that was borne out of a gap in a niche market for professional-quality goalkeeper products. Since its inception in December 2001, the business has grown to export to over 30 countries across the globe, including markets in Asia, South Africa, North America and Europe.
Sells boasts a host of world famous goalkeepers that wear its branded gloves, including English premier league goalkeepers such as West Ham and England keeper Rob Green, Birmingham City’s Ben Foster and Tottenham Hotspur shot-stopper Heurelho Gomes.
Furthermore, the company currently ranks itself as the fifth largest of its kind in the world, and soon hopes to move into the top four only behind global sporting giants like Nike and Adidas.
Santander supports UK firms
While the reverse factoring product has only come to the fore in the UK in the past two years as a result of the economic crisis, Santander’s supplier finance programme has offered a funding solution to suppliers and buyers for over 20 years in the Spanish speaking world.
Through the scheme, Santander releases up to 85% of the value of an invoice within 24 hours of the invoice being received. The remaining value, minus a service fee, is paid to the supplier once the buyer pays.
The bank does not intervene in any commercial aspect of the deal, leaving working relationships between the supplier and buyer free to grow without restrictions from outside forces.
The programme is particularly helpful to small and mid-sized enterprises (SMEs) as it works on the credit rating of the buyer rather than the supplier, and in many cases, the buyer’s credit rating is significantly stronger, providing SMEs with access to cheaper finance.
Steve Ellis, sales director at Santander Corporate Bank, tells GTR: “The programme allows for suppliers to have faster access to their money, and offers buyers much more stability in their supply chain. Buyers want this stability because if they lose a supplier then they’ll have to go through the entire process of sourcing and credit checking a new supplier. So what this programme helps create is a happy supplier and a happy buyer.”