My Relationship with Banks
Originally sent exclusively to The Letter subscribers on March 17th. Want to be the first to get my personal newsletter in your inbox every Monday at 7am? Subscribe for free here.
It’s not your lack of resources; it’s your lack of resourcefulness.
This week, I was playing banking bingo.
Our organisation banks with numerous institutions and strikes deals with anyone that fits the criteria we’re looking for.
It's not that we want this many rendezvous with various banks; it’s just the way things are.
Banks - like people - have their idiosyncrasies and habits that we have come to understand.
I see them as family members, each adding a certain level of love and expertise to our adventures in entrepreneurship.
We primarily bank with one institution - like your Mum and Dad, they’re our most dependable support - but we also use other family members for different needs, such as a wise old aunt, grandparent, or fun uncle.
Banking exclusively with one institution doesn’t fit our needs these days; we don’t conform to a one-size-fits-all model.
Some banks prefer commercial property, others favour childcare, and some perceive it as high risk!
It seems some have a penchant for storage parks, which I too find quite appealing nowadays, while others wouldn’t touch them with a ten-foot barge pole!
Who are these people that own barge poles?
Understanding what appeals to different banks has been a process of practice for me.
A good set of bank managers and a great broker must be in the toolbox of any ambitious entrepreneur, especially considering where we aim to go.
On Friday morning, I had three back-to-back calls with different banks we’ve partnered with.
We kicked off with HSBC to discuss our international operations - they can handle all of that for us. They are truly global, which is very handy.
Additionally, we’re raising some funds with them for property and placing four new acquisitions with them.
They’ve been incredibly supportive and are brilliant partners.
Want to buy a profitable business? Planning to use bank acquisition finance on an unsecured cash flow basis but intending to pay it back quickly? They’ll help.
It’s not my preferred approach for cash flow; repaying money rapidly can be painful.
I borrowed a million from them six months ago, which is all due to be repaid in three years. While I’m eager to clear it, monthly repayments of £35,000 are no small burden.
However, at that time, it facilitated the deal.
I prefer to spread debt over as long a period as possible to conserve cash flow.
If you encounter a windfall and wish to pay it back early - go for it - but always aim to generate more cash flow than you anticipate needing, if possible.
In this instance, it wasn’t feasible, but I knew I could refinance in six months if I desired.
For this deal, I plan to repay early by transferring the debt to another banking partner - the main one I affectionately call Mum and Dad - and spreading it over 25 years with my property portfolio.
That’ll mean £5,000 a month instead of £35,000 monthly. That’s cash flow creation right there.
Next, I caught up with Investec, primarily to discuss a loan we have with them; we are paying that off early and refinancing at better rates, too.
It’s a similar story to my friends at HSBC: fast repayment but quicker to finalise the deal.
Again, I can get it onto term debt spread over 25 years. Leverage buyouts? That’s Investec - that’s their speciality.
They were eager to support us in the future, and paying them back early will earn us brownie points with their credit committee - the mysterious ones who approve these deals.
Despite being on the pricey side, they have been very helpful.
If you’re into big-ticket purchases, they’re your go-to. Lending starts at £5 million to £35 million. You must be profitable, and the business you are acquiring needs a predictably robust cash flow.
They aren't interested in childcare and direct-to-consumer businesses.
Present them with a waste management company that has contracts, and you'll be in for a date with them.
Then came a catch-up with a Swedish bank that financed my dinosaur park, as well as my brokers regarding a million here and four million there.
I wish you could’ve been on these calls - it’s a learning experience.
The conversation with Investec prompted this letter.
I excitedly informed them of everything I’m involved in. I proclaimed, “I’m like a private equity firm without the money! I do the deal, then worry about funding it; I find it’s better that way.”
Then they said...
“You’re exactly the same as private equity. That’s what they do.”
In that moment, I realised that these neatly dressed professionals, clad in gilets and quarter-neck jumpers, who resemble Roman generals going into battle in finance, are searching for a profitable entity with six-foot opportunities and piercing blue eyes.
They succeed because they look beyond the surface; they explore and cultivate business opportunities like gold diggers.
I have learned that doing the deal is the challenging part, while securing the funding for a good or great deal is often much easier than we all think.
Investec primarily funds private equity and venture capital deals, so the response from my bankers there was laden with tried-and-tested experience.
It wasn’t merely their opinion; it was a fact.
At that moment, I had a light bulb go off.
It ignited many other ideas that had been dim in the back of my mind, bringing them to the forefront.
My understanding of how private equity operates has been significantly confirmed.
These financial wizards are often labelled as magic partners with vast reserves of cash; however, they typically do not have it all.
They are not sitting on a large wad of cash. Instead, they expertly craft an illusion that they are magicians of money - what they truly possess is talent and some capital, but nowhere near all of it.
Their true skill lies in knowing whom to approach and how to secure funds.
Most entrepreneurs do not have many “who’s and how’s,” but private equity firms do. Great entrepreneurs do.
You must build your network. Attend seminars, seek to meet influential figures, and learn as much as you can - it will serve you well.
Private equity houses, venture capitalists, and successful entrepreneurs are masters of fundraising; they complete the deal first, then focus on obtaining financial backing.
For every Blackstone and Blackrock that truly have towering amounts of cash, there are countless talented individuals with connections to capital granted, some money, but not all of it.
These esteemed investors are masters of leverage, conjuring funds from multiple sources, financing deals with bank and investor cash because they discover lucrative opportunities that others wish to back.
What are you doing this week to expand your connections? How are you making yourself attractive for financing?
Here are some starters to whet your appetite:
Call a few new finance brokers
Ensure you know your numbers inside out
Employ an accountant
Meet some new banks
Reach out to a business owner further along than you for a chat over coffee. That’s what I did... and still do.
Or join me at my next seminar (shameless plug)
The title of this article is so powerful.
"It’s not your lack of resources; it’s your lack of resourcefulness"
Most don't go, because they feel they don't have the resources but really it's your lack of resourcefulness that holds you back.
Most wealth is created from scratch - in the first generation.
So why not you
Two things I discovered this week - one about food and another point of order regarding banking:
On food... have you ever wondered why the French eat snails?
They detest fast food.
And lastly, concerning banks: my credit card was refused at the jumper store today. The cashier had to ask for my cardigan.
To your continued success,
James
PS. I’m hosting an evening show at the Leicester Square Theatre in June, it would be great to se you there - Details here.