One important key to obtaining financing is to develop a strong, personal relationship with the lender. No matter the status of the economy, a strong relationship with your lender will always help put you in a better position to get the deal you need done. But, in the current economy, credit is sparse, and competition to obtain financing is fierce. So, nurturing a good relationship with your lender is more important than ever.
Simple actions, such as personal visits to the lender, can go a long way to building a good relationship and eventually finalizing a deal. But, lunch alone is insufficient. You must do more. We suggest introducing your management team to the lender. Invite the lender to spend a day or two with your key staff and show the lender how your operation works by making the lender familiar with your management team and structure. Similar to a personal guaranty, cultivating a lender’s relationship with your management team will only help increase a lender’s comfort level with your company and your deal.
Show and Tell
It is also vital to show that your operation has an extensive history of strong financial performance, in both good and difficult economic periods. Therefore, highlight an instance when your management team achieved financial success during a difficult economic climate without needing to resort to borrowing. If you can show how your operation overcame difficult situations in the past, it will only increase the lender’s confidence in your ability to maintain a thriving business in the future.
As you proceed through the initial stages of forming a deal, also make certain to ask, up front, detailed questions of the lender in order to determine their expectations for a proposed deal. Find out exactly what type of guaranty they want and what sort of financial covenants and default provisions they expect. The more information you get from the lender when you start negotiating a deal, the more likely you will be able to quickly adapt your application to their requirements. But don’t rely solely on the lender’s feedback. Be proactive and anticipate what a lender will need to approve a deal. In essence, do the lender’s work for them and prepare an initial application that allays the lender’s concerns before they have to ask.
Make Their Job Easier For Them
If your operation is fortunate to have a history of strong financial performance, prove it to the lender. But don’t simply provide a lender with extensive financial records. In our current economic environment, many lenders will not and cannot invest the time to sift through massive volumes of company records. The due diligence process is key to any deal, but overwhelming a lender with information may make them believe you are trying to mask potential flaws in your operation. So, do your own advanced due diligence and be certain to emphasize precisely what a lender needs to approve a deal at the start of negotiation. If you make a lender’s job easier from the beginning you will only increase your chances of getting a deal done.
Again, before you approach the lender, prepare precise and pointed evidence that your deal will work and that the lender will get paid. Make your credit worthy status clear and provide evidence of the liquidation value of your collateral. Increase the lender’s confidence in your operation by strengthening your deal with personal guaranties. Also increase the lender’s confidence in your deal by proving to the lender that yours is an operation run by goal-driven and focused individuals who will find creative and financially beneficial strategies to overcome a difficult economic environment. Get to know your lender, know what they want, what they expect from a deal and in the process make their job easier. In essence, do the lender’s job for them. Lastly, anticipate what a lender wants to achieve from a deal. And, always begin your negotiations with a well organized application.