Tips for Getting Credit From Asset Based Lenders
PERSPECTIVE, according to Webster’s Dictionary, is “the interrelation in which a subject or its parts are mentally viewed; the capacity to view things in their true relations or relative importance.”
Where does the notion of perspective belong in a discussion about asset based lending? At the very beginning because borrowers who require an asset based lender to finance the credit they need must understand that asset based lenders are not bankers and, therefore, they evaluate credit differently.
But let’s back up for a moment and look at how a business owner gets to an asset based lender in the first place. More often than not, when a banker has a client whose loan is non-performing or out of covenant, or whose financial needs have increased beyond the bank‘s ability or willingness to extend credit, and the business owner is going to be asked out of the bank, the banker will refer the client to an asset based lender. There are also companies (those with short operating histories or no borrowing experience with banks) that can’t obtain bank financing at all. In all of these situations (when the bank says, “no”) this is the point at which bankers, CPAs, attorneys and business consultants often bring in an asset based lender.
This is also the point when the issue of perspective looms large because many borrowers expect to pay about the same interest rates banks charge and receive the same advance rates. But since asset based lenders are assuming the risk that banks can’t or won’t accept, they’re going to charge more for their money. As such, the perspective that borrowers need to adopt is that the availability of funds and how they can best be used is more important than the interest rate.
Good lenders need to place the issues in perspective as well. For example, when an asset based lender audit’s a prospective client’s business and finds that the accounts receivable are not performing well, it’s easy to want to walk away from the deal. However, taking other considerations into perspective, a dismal audit can oftentimes be overcome. Lenders seriously looking for ways to say, “yes” and help companies succeed, will often call a meeting to discuss what the audit revealed. How the borrower handles this meeting could very well determine their success in attaining financing.
Helping the lender look past the numbers and the company’s history, and concentrate on the company’s future plans and management’s ability to carry out those plans, can guide further negotiations. Borrowers taking the following actions will be the most successful in overcoming lender objections and helping them ultimately fund their deals:
- Ask for a meeting agenda. The agenda will outline all of the issues the lender wants to discuss and will provide a heads-up on any problems spotted by the lender.
- Be prepared. Come to the meeting prepared to discuss all the agenda items. If that means bringing your CFO, accountant or other experts to help make your case, then by all means do so.
- Have a clear plan. Even though the business may have had problems in the past, projections of a rosy forecast will not be enough to necessarily sway a lender in your favor. You’ll need to demonstrate exactly how you plan to get your business to the levels you’re projecting for the future. You’ll need hard data to support your contentions. Realistic projections will help the lender get the sense that you know what you’re talking about.
- Be candid. The lender is bound to ask a lot of questions, and it will be important that you not skirt any issues. If you don’t have an answer right then, be honest and say so. You can provide the lender with the needed information at a later date.
- Demonstrate strong leadership. Borrowers who can persuade lenders that they have the ability to do all of the things they say they’re going to do are more likely to see the lender try to work out the issues and move forward with the loan.
Perspective is a very important concept in asset based lending. Not only can it mean the difference between a borrower being able to obtain financing, it could very well mean the difference between the ultimate success or failure of the business.