The Lender Of The Pack: How To Hunt For Business Loans Like An Alpha Dog

The search for a loan is a critical tactic in your business plan

. There is a right way to secure business financing that will preserve your lending relationships, maximize your borrowing effectiveness and promote business growth. Be a more durable borrower by following these seven principles for finding loans.

Treat your lenders like life partners. Invest time, effort and money in your lending relationships before you need a loan. Creating a close professional relationship may help you get better loan terms and pricing and may facilitate the credit approval process. Be a loyal customer by aggregating your banking business with a few select lenders. Be flexible. A good loan agreement is one in which neither side gets everything they want and feels they left something on the table.

Design a compelling request for proposal (RFP). Invest time and money to produce a professional loan request that will represent you in front of the credit committee. Your RFP should contain a cover letter with your borrowing objectives. Highlight whether you want fixed or floating rate debt, the term, the loan amount and any ancillary terms that are important to your company such as recourse. The RFP body should contain an executive summary of the project, key components of the business plan, market and demographic data if applicable, and summary financial data for the borrower, sponsor and the collateral. A pro forma return on investment (ROI) calculation is essential information for new business property. Pictures tell part of the story so be sure to include photos of the loan collateral.

Get more than one loan bid. Two quotes provides something to compare so do yourself a favor by asking at least two lenders to bid for your loan business.

Maintain a current loan quote matrix. Create a simple spreadsheet to track bids from lenders. Include basic information such as lender name, loan officer, phone number and the date your loan proposal was submitted to the lender. Record any funding requirements in the bid like maximum loan to value (LTV) and minimum debt service coverage (DSCR) tests. Track the quoted loan amount, interest rate and fee structure. Look for any required reserves such as property taxes, insurance and capital improvements. Make adjustments to the stated interest rate to account for fees and reserves so you are comparing like loan terms. There are many other terms in the lender terms sheet that should be tracked during the bid process. The loan quote matrix will help you monitor the loan bid process and quickly compare quotes to select a winning bid.

Be discreet. Confidentiality is a top concern for lenders. They want to keep their proprietary bid details from competitors. A term sheet will often contain boilerplate language requiring confidentiality as a condition to providing the quote. Be a good borrowing partner and avoid shopping quotes to competing lenders. The small gain you make in pricing or terms could have lasting negative consequences for your lending relationships.

Best and final or sharpen your pencil? Decide ahead of time which bid philosophy you will take and stick with it. Let all competing lenders know the ground rules for bidding. A best and final approach will prompt lenders to put their best quote forward knowing there is no second chance. You may ask the top two or three lenders to refine their quote after all the bids are in especially if there is no clear winner. Level the playing field for the finalists by fairly sharing consistent information about the bids to-date. It is best to give general parameters about the competitive bids instead of specific quote details.

Pick a winner quickly. Bids can go stale due to changes in credit market conditions or within a particular lender. How you award the the loan business is a critical and sensitive issue. Move quickly to pick a winner after tallying the final bids. Make the sorry-but calls first to let the runners-up lenders know they did not win the loan business. Give a non-binding commitment to include them on your next loan request. Finally, make the most fun call to the winning lender. The result of a complicated process over weeks or months is finally over. Now the next phase begins. Closing and funding the new loan.

Finding new debt can be a rewarding experience. Your actions during the bid process will make all the difference in the current loan closing and future debt from your pack of lenders.

by: Michael Shelton

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