The first of three articles by Murray Fulton on Funding for Growth, one of the topics for which he is best known. In this one, he looks at the first and second-tier New Zealand banks; how to select the best one for your business needs and how to work with them for the best outcomes.


Many of our clients are not aware of how to source 1st and 2nd tier bank funding that fits their business needs. Access to tailored funding from a provider that both understands your business and is ready and willing to build a relationship based on trust, enables a company to grow.

Before I dive in, let us first look at the current lending environment, post COVID-19. The changes since the pandemic struck are both subtle and critically important.

Risk management

Banks have changed how they rate business risk

Since COVID-19, all banks have become more risk-averse. Banks rate businesses with a “Z” score, from 1 to 35. Pre-COVID, banks would lend to those with a “Z” score in the vicinity of 19 and above. Post-COVID, banks will lend to those with a “Z” score in the vicinity of 23 and above. The key point is that since COVID-19, banks have become more risk-averse, and will examine the risk of lending to a business in greater detail than ever.

How is the “Z” score arrived at? All banks have in-house software to assess the risk of lending to a business. This software requires the following numeric information:

  • The last 3 year’s annual accounts, prepared by a recognised and respected chartered accounting firm.
  • An integrated financial forecast (IFF).

Banks require an IFF, as this allows them to test the relative strength of the combination of profitability, cash flow, net assets and capital base. It also enables them to see where and for what purpose, any positive net cash flow generated by the business is used. I’ve described the constituent parts of an IFF in detail below.

Supporting this software-generated information are the views that the banker forms personally. These consider the following factors:

  • Character, reputation, honesty, and integrity of the business owner(s)
  • Key risk factors regarding the industry/industries in which the business operates
  • Strength of the management, IT systems, governance, and people culture within the business
  • The value proposition that the business offers to customers and prospective customers

The above factors are considered in total and result in a “Z” score. The higher the “Z” score, the more likely a bank will be to lend to that business.

Bearing in mind the more risk-averse bank lending environment in which we now find ourselves, we can move into the process of how to go about selecting the most appropriate bank for your business to work with.


How to select a bank

How do you assess which bank best fits you and your business?

1. Quality of the banker

An ideal banker has,

  •  At least 10 years of senior relationship management experience with 1st tier banks. Ideally, this is supplemented by risk assessment experienced within the credit team within at least one 1st tier bank. This gives the banker a solid professional risk management background with which to assess prospective businesses.
  • The maturity and credibility to engage with business owners and take on board the key attributes that give a business the ability to acquire, service, and retain quality customers.
  • Built the internal reputation within the bank required to engage with the credit and risk assessment professionals who will decide from a technical perspective if the bank considers a business worth lending to and on what terms.

2. Its reputation

The 1st tier banks in New Zealand are ANZ, BNZ, Westpac and ASB. The main 2nd tier bank is Kiwibank.

It is fair to say that the above banks have built a reputation in the New Zealand marketplace. Each has its relative strengths and weaknesses, market position, and types of lending they wish to focus on. I share this information in a tailored manner with my clients. They find this extremely useful when forming a view on both the suitability of their current bank and the best bank or bank they should be talking to regarding their funding needs.

I have specific and detailed knowledge in this space. My clients have access to both this knowledge and my current experience in dealing with these banks. This is important as they are all changing their market position and approach constantly. Current knowledge and experience are critical and make the difference between accessing bank finance that fits your business or taking what you can get.

3. Strength of the bank product set

Each of the 5 banks has different product sets, which are constantly evolving.

An excellent example is the current Government Guaranteed Funding (GGF). Each bank has adopted a different stance to marketing this funding, making it available and the terms on which they offer it. GGF funding, at the time of writing, is available until 31st December 2020. It is unclear whether the current GGF funding will be available after this date.


How do banks operate and what do they need from business owners?

The “Funding Gap”

All banks work on information – it is critical to supply the correct information, structured in the correct manner and format. This is because banks are risk managers, and their thought processes are quite different from the way that many business owners think. I call this the “funding gap”.

As a business advisor, my role is to bridge this funding gap. I aim to give my clients the best possible opportunity to source the bank funding they need, at the best possible interest rate, on the best possible bank security and timing terms.

An Integrated Financial Forecast (IFF)

What is an IFF?

The components of an integrated financial forecast are:

  1. Profit and Loss forecast
  2. Balance Sheet forecast
  3. Cashflow forecast

Each of these must be detailed in nature and (at minimum) include monthly figures for the current fiscal year and the following fiscal year, for the business as a group.

Why is it important?
  • It is the integrated nature of the P&L, Balance sheet and Cashflow elements of the IFF that make this IFF both so powerful for the business and so essential for the bank.
  • Without the production of an IFF, the chance of receiving quality bank debt financing is minimal.
  • Production of an IFF is a specialised task, requiring current professional skill and experience. I regularly produce an IFF with my clients, as an IFF is extremely useful within a business in addition to its use for sourcing bank funding.

Additional information

In addition to the IFF, the following information supports bank funding applications.

  • A business plan
  • Actual financial results over the last 3 years – via the annual accounts for the business supplied by its external chartered accounting firm
  • Details of the skills, experience, and mindset of the business owner(s), as well as their commercial strengths and weaknesses
  • A risk assessment of the industry sector(s) that the business operates within
  • An evaluation of the business management, governance, market, sales, and digital marketing

The bank uses both the IFF and the supporting information to make a risk assessment of how attractive this business is as a lending proposition.


Honesty, integrity, and consistency

Entering a funding commercial relationship with a bank involves ongoing full and frank discussions. It is fair to say that mutual trust is best built up between a business and its bankers when both deliver on what they commit to deliver and both share good and bad news. They must work together to leverage the good news and mitigate the bad.

As with all business dealings, both the business and the bank expect honesty, integrity, and consistency from the other party. The root cause of any positive or negative business/bank relationship lies in this area. I cannot overstate the importance of this. Trust must be earned before it is given.


Murray Fulton currently advises several clients on their bank and equity funding needs.  You can make an appointment for a no-obligation chat with Murray or contact him by email.

Read the next article in this series Debt or Equity Funding?

Download Murray’s Ebook, Funding For Growth.