One of the biggest challenges facing CFOs in the new economy is the negotiation of loan terms during a cash flow pinch. How can you increase your chances of getting the capital you need?
Have a Good Growth (or at least ‘stability’) Story. Get to the table early with a robust business plan stressing stability and financially feasible growth. Include a projected income statement, balance sheet, cash flow and working capital analysis—bottom up without pie in the sky revenue growth.
Hire an Ex-Banker. It’s the closest thing to an unfair advantage you’ll get. Look for someone with commercial, line lending and credit experience.
Know Your Lender. What is their typical loan size? What kind of businesses do they focus on? Do they have an ABL department? What is the health of the bank? What is their decision making process?
Consider Asset Based Lending (ABL). Typically, asset based lenders lend against the current assets of a business. While ABL interest rates are traditionally higher than regular business loans, disruption in the cash flow loan market may make ABL a necessary alternative.
Get a Term Sheet Early. Borrower’s leverage is highest at the term sheet stage. Once a commitment has been issued, approval must be obtained for any changes. Price, advance rates, covenants, and other basic loan terms are sticky—but it never hurts to ask. Do not rely on spoken representations.
Look for Alternatives. If you have access to capital markets, are you looking at equity in addition to debt?
Private Equity. When considering PE, ask yourself these questions: Do we have a compelling story for an investor seeking a return in a defined window? Do we have financial reporting to satisfy the needs of an investor? How involved will the PE be in our daily