Articles
Capital Street Helps Businesses Improve Terms of Working Capital Facilities
The current dislocation in global credit markets has altered the commercial banking environment in the UAE. Many banks which had recently extended new facilities are now trying to reduce their credit exposure by cutting credit lines or increasing lending rates. Although credit markets have tightened, these onerous changes in terms are often more a reflection on the banks than on their business customers.
Credit is still available to support the working capital needs of UAE businesses. Recent market turmoil has required many sound well established businesses to reexamine their banking relationships. Many banks are still lending, but are selective in which customers they take on. The best strategy is to develop a comprehensive plan and present the customer's business to several banks. Borrowers need to recognize that they are the customer and that their relationship is valuable to banks.
Capital Street Partners' develops offering material used to market a client's business to banks. Clients who communicate clearly and coherently the information banks need to evaluate credit decisions will receive better terms. Although Capital Street leverages its relationships with leading banks and presence in the market, we are paid only by the business seeking capital, with a portion of our compensation contingent on achieving a satisfactory result. This approach eliminates any potential conflicts of interest and ensures that our client receives the best offer available in the market.
Banks will generally want to see the following information presented in an easily accessible form.
- Basic management presentation describing business
- Description of working capital terms sought, depository accounts and collateral available to secure facility
- Excel based financial model and credit analysis showing including Debt/ equity, Cash-flow coverage and historic working capital fluctuations.
We have seen situations where the same customer receives a 15% rate from one bank and a 7% rate from another for the same working capital facility. Such wide discrepancies are a hallmark of the credit crisis. It also highlights the value of properly presenting a business to a wide range of lenders.
Requirements for working capital facilities:
The specific terms available will depend on many variables and ultimately be determined by the best offer received from banks. We are happy to discuss market conditions and how they impact your business in an initial consultation. The sorts of businesses that can benefit from our services generally have the following characteristics:
- Currently profitable business
- Audited financials for at least 2 full years
- Minimum AED 5 mm in facility size with bank
- Core business not focused on property development or real estate investment
About Capital Street Partners
Capital Street Partners is a Dubai based advisory firm committed to providing world class services. Our principals have been involved in over $500mm worth of transactions with global investment banks, private equity firms and established local businesses. Through CapitalStreet.net, the regions only dedicated site for buying and selling businesses, we promote UAE businesses for sale (AED 1-30mm market value) to buyers worldwide.
