Access to debt capital can be mission-critical for businesses with a growth strategy or for those looking to maximize shareholder returns.
Here are three approaches to attract lenders:
#1: Understand Your Market
Most lenders are generalists and are industry agnostic. While there may be subject matter experts on the team to opine on specific structural issues, lenders often take a broad approach when underwriting. Therefore, it is critical for the borrower to understand and clearly communicate the macroeconomic, microeconomic, and competitive pressures facing the business.
In addition to understanding the external forces that may impact a deal, it is important to understand the transaction structures and terms that are favored by lenders. Common structural snags often relate to personal and corporate guarantees, amortization, and leverage profile. Borrowers must be cognizant of the typical deal structure in their industry.
#2: Align on Use of Proceeds
Debt financing can be required for a plethora of reasons such as to make acquisitions, capital expenditures, pay distributions, or replace more expensive debt. It is important to identify a clear use of funds for better alignment between the borrower and lender.
Of course, lenders would like to see your business grow, however, some lenders are conservative and only want to finance current needs. It is best to work with a partner that looks at your business holistically to identify the best fit.
#3: Get Organized
While it may seem obvious, maintenance of good data and files is extremely important. Historical financials, key performance indicators (KPIs), and corporate formation documents must be readily accessible at a minimum.
In addition to speeding up the process, an organized borrower provides the lender a great deal of confidence during term sheet solicitation and the underwriting process. Internally, lenders assign risk ratings for proper internal controls. This is particularly important for more challenging credits.
During the financing process, Corlex’s debt advisory team manages the entire process of soliciting and receiving proposals and supporting our clients with value-added advice all the way through credit documentation and closing.