Arguably, there has never been a time in our nation’s history when lenders have been in a more capital protective mode. But, in large part due to the recent economic turmoil, many companies require ever increasing access to capital not only to grow but to survive. The imbalance between available financing and the demand for capital has caused many obstacles for companies to obtain the financing they need to sustain and build their operations. This article will set forth a few fundamental initial strategies that all borrowers should employ when seeking financing. 

One step to take in order to display that your deal merits consideration is to provide the lender with an impeccably well-organized application. Items such as clear and organized power point presentations, binders separated by topically marked tabs, and easy to follow charts can be of significant benefit during the initial steps toward obtaining financing. If you are not organized and concise at the beginning of your relationship with a lender, it will negatively impact the lender’s opinion that you merit consideration for financing. The more organized you are on the front-end, the less likely a lender will expect problems to occur on the back end. So, it is very important that you begin your relationship with a lender by submitting an organized application. 

A well-organized presentation is a beneficial first step, but it must be followed by evidence that your deal is supported by strong collateral. Lenders generally want to see strong collateral in the event a deal experiences turmoil. Before you approach a lender, do extensive homework on your operation. For instance, determine what your most valuable sources of collateral are and make it a point to clearly explain to the lender that they will be shielded from risk because of your collateral. Accordingly, an internal evaluation of your collateral’s liquidation value will enlighten an applicant lessee to the position of a lender. 

In the specific context of equipment leasing, the equipment subject to the lease is often no longer adequate collateral to get a deal done. Generally, lenders want more security than the simple return of their equipment. Therefore, it is often critical to show that you are willing to provide additional collateral to support your deal. 

One example of strong additional collateral is a personal guaranty. Borrowers often must be prepared to provide one or multiple personal guaranties for a deal. For instance, it has become exceedingly more difficult to obtain a line of credit or to be in a program agreement without providing personal or other guaranties for debt. Many lenders want as much certainty of payment as possible and guaranty agreements can be persuasive evidence that the lender’s investment will pay-off. 

Guaranty agreements can also serve more than one purpose. In addition to providing added security for the lender, a guaranty agreement, particularly a personal guaranty of one or more members of your management team, may instill confidence in the lender. Such guaranties display that you and your management team are personally invested to take every possible step to make a deal work. 

Author:

Tony Lamm and Mike Trainor