Tips on how golf clubs can secure loans from lenders

Alistair Dunsmuir
By Alistair Dunsmuir March 18, 2012 15:43

Tips on how golf clubs can secure loans from lenders

Bank managers reputedly spend a lot of time on golf courses, but not, it would seem, on trying to gain them as customers. Generally golf clubs, as a sector, ‘get the red flag’ when it comes to lending for our bankers.

In theory, golf clubs would seem to have the basic credentials to be good borrowers. They are based on land and buildings (so have assets to secure borrowing with) and have regular income from long-term members (less likely to cancel their membership than if it were a season ticket or gym membership). They are also generally professionally managed with influential local people involved.

The banks, however, see property that is specialised, with limited alternative use, and therefore of restricted value. They also have experience of clubs that don’t ‘sweat their assets’ by diversifying and creating additional revenue, leaving themselves vulnerable to seasonal pressures and less robust membership profiles. They therefore see ‘risk’ and, of course, do not want to be the bank returning cheques on their local golf club with all that that entails.

Some lenders do claim to be ‘open for business’ in this sector, but still qualify this to state that they only provide specialised facilities for well-established clubs.

They look for a strong track record, low members churn, a good age profile in the membership, good visitor levels and waiting lists. They are particularly wary of pay-and-play-style clubs which suffer from strong seasonality and volatile revenue.

The challenge that this creates is that a club that is discontented with its current banking relationship will find it harder to find an alternative lender. In that situation the search for a new banking relationship has to be undertaken very carefully and professionally – with a strong presentation and compelling arguments as to why the club is a better risk than most and in fact a good income opportunity. It is also crucial to find the right individual – someone who understands the business and will fight the case hard with underwriters.

For those golf clubs that are tied to existing relationships, it becomes more important that they ‘relationship manage’ the bank. Any business with external investors naturally puts resources into ‘investor relations’, keeping investors informed and feeling positive about the business, even when there is bad news. Banks are now expecting the same rights and level of communication as investors and it is appropriate to respond to that with a positive approach to managing the issue, painful as it may be.

There are plenty of cases where businesses have resented such demands and provided poor information, reluctantly and only under pressure. This leads to the bank making their own mind up about how the business is doing and its prospects. Businesses then become exposed to the risk that facilities can be re-priced or even reduced or withdrawn.

‘Managing your bank manager’ may seem like an unnecessary and unwelcome addition to the club managers’ list of things to do, but in the current climate it is always going to be easier and cheaper than finding a new bank.

Such an exercise might include:

• An initial open discussion to stress that you want to build a very strong relationship and to understand the bank’s issues and how it views the business. Most commercial bankers have good experience of other businesses and actually appreciate being asked for advice. The quality of the response will certainly let you know about the commercial skills of the individual.

• Ensure that the potential lender visits the golf club, but perhaps invite him or her to spend some time in the business also (some banks encourage that).

• Find out what he or she is looking for when analysing your figures, but also explain how you use the figures. Any financials released to the bank can then be accompanied with a short report which gives a balanced picture (so you can manage both the good and the bad news).

• Ensure you understand the technical aspects of your loan deal, such as when and how covenants are tested or how interest rate management contracts (SWAPS) affect pricing.

Finally, you can always invite them for a round of golf.

Steve Leverton is a commercial finance broker with Stirling Partners Finance

Alistair Dunsmuir
By Alistair Dunsmuir March 18, 2012 15:43
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  1. (@GCM_mag) (@GCM_mag) March 18, 15:44

    Tips on how golf clubs can secure funding from a lender:

    Reply to this comment
  2. james thomas November 21, 11:47

    as a bank employee i have seen many golfers are facing the many problems to get a loan

    Reply to this comment
  3. stanharris May 10, 09:59

    Thanks for sharing a great article. It is really informative and helpful to me.

    Reply to this comment
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