Summary
¦ International Plywood previously worked with two banks.
¦ It decided to find a new bank that shared its appetite for developing its business.
¦ It talked to a number, eventually choosing Lloyds.
¦ Its new banking relationship gives it the facility to react to growth opportunities, as well as the flexibility needed to trade in a tough market.
International Plywood wasn’t unhappy with its previous banking arrangements.
For a number of years the leading plywood importer and distributor had two sources of funding and that suited it fine. RBS provided its invoice discounting services, while Yorkshire Bank handled trade finance.
“We thought this gave us maximum flexibility and funding security,” said International Plywood managing director Ian Attwood. “Our view was that with two banks, we felt we had options. If one went a bit wobbly on you, you always had somewhere else to go.”
So, if things had continued as they were, it seems IP would probably have continued with the two banks are better than one strategy. But then Yorkshire Bank went more than wobbly.
“They just didn’t seem to share our appetite for the development of the business,” said Mr Attwood. “Whether they wanted to reduce their liability generally, or exposure to the timber market, who knows? But it became clear that we had to rethink and change.”
This, he acknowledges, was a “trauma”.
“With our previous two bank approach, we felt we were in the driving seat and could say to them, this is what we want from you,” he said. “With one, we felt it might be the other way around.”
Despite this reservation, however, IP decided to explore all the options and throw open its banking custom (adding up to funding provision of £37m) to the field.
During a six-month evaluation process this year, the company had “conversations” with a number of banks, but eventually whittled the beauty parade down to three contestants: Barclays, HSBC and Lloyds.
For Mr Attwood, the experience changed his view, widely held in industry generally, that post credit crunch the banks have pretty much pulled up the drawbridge on new custom – but not entirely.
“We found that some banks remain very cautious and conservative, but all three of the main ones we spoke to have a healthy appetite for new business. So it’s really a question of choosing your bank.”
He stressed, however, that even though they were hungry for IP’s custom, none of the short listed banks was a pushover. While IP had demands to make, so clearly did they.
Stringent checks
“They could see we were a very good business with a decent balance sheet and they were keen to come to the party, but they also wanted a lot of detail and put us through very stringent checks and lots of meetings,” said Mr Attwood. “They wanted to know exactly how the company worked and looked in depth at our whole business and management structure.
“In fact my advice to any company looking at new banking arrangements today is that you have to be prepared for some major intrusion. The finance may be there, but you have to be willing to provide very full information to get it. It is hard work, but understandable. The reason the banks and the economy got into trouble in the first place was because they were too airy fairy in who they lent to.”
This in-depth interrogation of the business did have its benefits too, he added. “It made us scrutinise the business ourselves and question why we do things the way we do,” he said. “It was a useful exercise in that respect.”
Why IP eventually opted for Lloyds was due to a number of factors, among them the bank’s efforts to understand the business and really get under its skin.
“They’d definitely done their homework on us and their Gloucester office, which handles our business, also deals with a number of other timber traders in the Bristol area,” said Mr Attwood. “But they were still keen to know more and, we felt, really listened to us. They wanted to know what our strategies were, even such detail as how we chartered vessels.”
Relationship manager
IP was also given a dedicated relationship manager by Lloyds.
“He’s always available to give us advice and information and can very quickly get us to the right person within the bank if our query is not something he deals with,” said Mr Attwood. “An added attraction is that he’s locally based, which makes getting round a table that much easier.”
The start of the new relationship wasn’t without its headaches. “My one criticism is that Lloyds did require an awful lot of form filling and box ticking,” said Mr Attwood. “But I suppose, part of the problem was our getting used to a new approach. Once it was done, it was done.”
Both IP and Lloyds expressed the view that their relationship will be long-term, with the latter saying the finance deal it ‘tailored’ for the company is designed to grow with it – and IP plans to hit £100m turnover in two years.
“For us, the arrangement provides the flexibility to react quickly to market opportunities,” said Mr Attwood. “I’m not saying we’ve got acquisitions lined up, but if something arises, we can respond immediately. We also have the freedom to expand our standard range, when the time is right, and develop our European sales. In addition, Lloyds have suggested longer-term options for us, such as interest rate hedging.”
Critically, he added, the Lloyds arrangement and its flexibility – which seems to match what the company had before with two banks – also “frees IP up to trade”.
“We’re cautiously optimistic about the market in 2011, but it’s still going to be tough and competitive,” he said. “However, being financially on a sound footing and having a bank that knows our business gives us that extra confidence about our own prospects.”
