Behind the scenes of a challenging deal: More than meets the eye.
Everyone loves a great story! Grab your coffee and get comfortable.
THE PREFACE
As a finance broker we all have a genuine desire to help our clients. Upon delivering great outcomes, clients show immense gratitude and thanks for how we unbelievably waved our magic wand casting finance sorcery to get their deal across the line.
In reality, as brokers, the honour is ours to be given the opportunity to do what we are passionate about and earn our way to becoming our client’s long term finance partner. For that we are grateful to our clients.
I thought to share my recent case study of a client who has a much more interesting story than me. Unfortunately, David Attenborough is retired, Morgan Freeman is booked, and I had to knock back Ryan Reynolds request to narrate as I would end up laughing more than seeing the value of this scenario.
So here it is….with permission from my client.
THE CLIENT – The Sneaker Laundry (TSL) founded by Eugene Cheng. An entrepreneur that crowdfunded the idea of a shoe cleaning business barely out of university to raise nearly one million dollars. Quickly becoming the talk of social media and news outlets back in 2017. Even the National Australia Bank (NAB) had to leverage such a success story by creating a video about Eugene’s entrepreneurial journey for their Tiktok channel.
THE BUSINESS – trading over 7 years, well managed with annual revenue of 7 figures with presence in Sydney, Melbourne, Bangkok, Lebanon, Doha and Riyadh. No tax debt. No business loans or overdraft. $180K surplus cash reserves. Crowd Sourced Funding (CSF) structure.
THE SCENARIO – TSL is expanding to another site and is seeking finance for fitout and renovations. Once completed, the landlord will re-imburse the cost. The client is wise to leverage debt strategically to achieve goals while increasing liquidity within his business.
THE NEED – $150,000 short term / bridging loan.
[At this stage, every lender would love to work with this client however this bankable client is a law graduate who has the commercial tenacity to dissect every product. He is managing cost and ROI closely across all his businesses. The solution must be cheap and without any exit penalties.]
THE CURVEBALL – Directors are not homeowners, and the company structure is a CSF regulated similarly to a public listed company with over 680 shareholders.
THE RESULT – APPROVED $150,000 over 24-month terms unsecured with competitive rates.
THE OUTCOME –
[THE END]
Now that’s the plot. But for those movie goers who like to wait for the credits and watch behind the scenes, curious to know what it takes to get the deal over the line or if you are a broker interested in more technical insights….then read on.
(The plot always thickens when you are a finance broker! Always navigating unforeseen roadblocks)
THE CHALLENGE – KYC Policy (Know Your Customer procedure to ID a shareholder with more than 20% share in the company)
[Lender credit team approached their KYC responsibility by recognising there is 1.6M crown funded shares with a paid-up capital of $660K. One “John Do” crowd funder invested $200K to own 500,000 shares. As a result, they believe they are obliged to KYC this person and requested for their details.]
THE ROADBLOCK – how does anyone have the ability to contact a stranger that invested through a crowd funding platform and request for their personal details? For the purpose of KYC towards a loan? Will the crowd funding platform overlook the privacy act and offer their client details?
THE JOB – mitigate this request and obtain an exception from the lender.
THE APPROACH – Reviewed the TSL Shareholders Report. Identified there is a total of 12.1M shares allocated within the business (10M ordinary shares plus 2.1M CSF Shares). The director holds 6.2M ordinary shares.
THE DEBATE – This was clearly a case of percentage of paid up capital versus percentage of shareholding. My argument to the lender credit team was the CSF Shareholder only holds 500,000 shares which is equivalent to 4% (500,000/12,100,000). You can’t measure share holding based on paid up capital. Lender’s view – CFS ”John Do” member paid $200,000 for 500,000 shares vs Directors $30,000 for 6.2M shares.
THE REQUEST FOR EXCEPTION – I requested the lender to view my request for an exception based on the KYC/AML definition extracted from AUSTRAC. Lenders are required to conduct this based on any individuals, other than directors, who are “beneficial owners” that have a shareholding of at least 25% shares, who ultimately “owns” or “controls” the entity.
THE INTERNAL REVIEW – Credit officer (No), Head of Credit (No), Her boss (No), Chief Financial Officer (I can see your point in case – Approved!)
THE CELEBRATION – The incredible feeling as a broker when there is more to it than delivering a full approval for our client’s. Overturning a credit decision and potentially setting a precedence is more gratifying!
THE FINAL CREDITS – In essence, all finance brokers work hard to represent their clients to deliver best outcomes. There is more work behind the scenes than meets the eye. A LOT of thanks go out to various stakeholders including lender BDM (Business Development Managers), lender credit teams, and senior management. Together we all have a genuine desire to help and make a deal work.
THE REAL END 😊
PS – TSL has kindly offered my network a special discount across their website at thesneakerlaundry.com.au until August 15th. Just use coupon YUAN15.
