Floyd Haynes, Founder and Chairman of New Hayven Merchant Bank, says Guyana’s emergence as an oil producer has fundamentally changed the way banks evaluate businesses seeking financing, with larger transactions and higher-risk projects driving a more rigorous approach to lending.
Speaking on the August 6 edition of the Energy Perspectives podcast, Haynes said the scale of opportunities created by the oil and gas industry has required financial institutions to strengthen their due diligence and move away from lending practices that were common before first oil.
“Post-oil, everything sort of blew up, and all of a sudden, the demand for financing was huge… Financial institutions had to really take a step back, and re-tooled their whole approach to businesses,” Haynes said.
Before the sector expanded, Haynes explained, businesses typically sought smaller loans and financing decisions required less extensive analysis. The size and complexity of projects tied to the energy industry have since raised expectations for both lenders and borrowers.
He said banks are now placing greater emphasis on a company’s financial performance, management capability and long-term strategy before committing capital.
“We [banks] have to be able to assess the risk, and the only way you can assess that risk is to look at things like a business plan. How are you positioned in the industry, in the market? What are your competitive advantages? What is your strategic advantage?” he explained.
According to Haynes, businesses can no longer expect financing based solely on an idea. Instead, they must demonstrate how they intend to execute their plans, differentiate themselves and generate sustainable returns.
“With the explosion of oil and gas and the industry at large has come a demand for more rigor, and businesses now have to think beyond” he said, adding that enterprises now have to ask themselves “what skills do I have that give me a competitive advantage, so that when I sit with the banker or the investor, I can articulate an impressive vision that differentiates me from everybody else in that business?”
