10 Tips for Smart Borrowers

Use these strategies when working with a lender to get the capital you need.

Many companies need capital now to purchase equipment, and the good news is that some lenders are actively seeking new opportunities.

The way a company presents itself to a lender is critical. Certain factors beyond a company’s cash flow and credit history can impact the outcome of a credit application. To ensure you get the financing you need, follow these 10 guidelines.

Reach Out Early. The best time to approach a lender is before you need capital. Building a relationship and educating a potential lender about your business prior to applying for a loan can have a big impact. The more a lender knows about your business, the better it can advocate for you. If you wait until you need money, you may limit your options. 

Treat the Lender like A Strategic partner. Relationships matter. You and your lender must share the same goals. Smart borrowers consider the lender’s perspective and try to find a two-sided solution when financing challenges arise. 

Be Transparent. Trust is the foundation of all credit relationships. You must be upfront with your lender about your challenges. You may think negative information or a troubled financial history will eliminate your chance to get a loan. But the real deal breaker is if a lender invests time and resources into your account and finds late in the process that the information you have provided is considerably different from what is discovered during the underwriting process. 

Tell A Compelling Story. Every business has a story. Tell your story in a way that highlights your successes and acknowledges your challenges. Create a forward-looking business plan that adds breadth and depth. Also, organize your financials, and be sure they align with your narrative. Lenders need to see how you have overcome obstacles and solved problems—and how you plan to move forward. 

Gather Your documents. Every interaction with a potential lender carries significant weight. Mistakes, even if they seem inconsequential, can cause the lender to lose confidence in you and your business.

Understand all the key terms in your covenants, contracts and credit documents. Also, show that you always meet your commitments. To facilitate the process, put a cover letter on your business plan that includes important dates and obligations. 

Find a Lender with Industry knowledge. Industry-savvy lenders experienced in the construction sector and knowledgeable about construction equipment values can be helpful advisers and advocate in the credit approval process.

They will have a better understanding of your business plan, industry position and challenges you face. That knowledge will be helpful in structuring your financing and maximizing any available credit. 

Communicate. A lack of communication can kill your financing prospects. From day-to-day details to big changes, keep your lender informed. If an unexpected event occurs—for instance, an important executive resigns suddenly or a disaster occurs on a project site—contact your lender as soon as possible, preferably before it hits the news. 

Adequately explain the problem and any impact it may have on your ability to meet your loan obligations. Providing advanced warning will build the trust that underpins a productive lending relationship and allow your lender to be as flexible as possible while your company works through the challenges. 

Think Like a Lender. Whether you need increased credit or have a new challenge, understanding your lender’s thought process and considerations will result in a more fruitful interaction.

For example, agreements to amend and extend credit can be complex and time-consuming. A smart borrower understands these dynamics and has the foresight to contact the lender 18 months before the loan is due to discuss any necessary adjustments. 

Choose a Financing Structure. By doing your homework to see what other companies are doing, you can improve the discussion with your lender and create a workable financing solution for your business. Another company’s structure may not work for you, but it could be a great starting point. 

Optimize Cash Flow. Cash flow is king. Your lender needs to understand all the money coming in and out of your business as well as your payment history and your customers’ payment history. Better yet, show your lender exactly how you plan to improve cash management efficiencies. 

With careful preparation, borrowers who collaborate with their lenders can boost their chances of success. Borrowers should look for flexible lenders that have enough capital to support them through good and bad times and industry expertise to maximize the amount of financing they can extend.

Capital is available for well-managed businesses. But in today’s environment, it is more important than ever to present yourself and your company in the best light.

Construction Business Owner, October 2011