Have you ever shopped for an item or hired a contractor and thought you were getting a great deal based only on the price tag? In my personal life, I found out the hard way more than once that making a decision based on price alone can lead to disappointment soon after. Price is only one factor to be considered when making a purchase or employing someone’s services. Now I do my homework. I ask more questions and check for references. I look for quality products and exceptional service. I want to work with somebody who is experienced, takes the time to understand my needs and will continue to support me in the future.
The same decision process should be applied when deciding on a lender. When business operations are adversely affected because there is no lender support or approvals take too long, it is not only frustrating but costly. Business owners need a lender who can provide workable solutions to meet their unique cash needs, allowing them to take on new business opportunities and grow. Therefore, it is important for borrowers to do their homework. What kind of experience does the lender have? Will they continue to support you during the ups and downs of your business cycle? Do they commit the time to meet with you to come to an agreement that can work for both parties?
Really it all starts with building a healthy relationship with your lender. Open and honest dialog will help build trust and a willingness to work through any issues that may arise. Borrowers should seek their lender’s support early on in the process, before little blips become big problems. Sharing your business plan, current collateral, and financial reporting with the lender will help them come up with timely solutions. This has become even more evident in the current economy. It would be difficult to find a business that has not been affected in some way by the pandemic. Despite the uncertainty, businesses that already had a solid working relationship with their lender were often able to come up with solutions to adapt, survive and for some even grow.
Of course rate is important, but there are other items to consider as well:
- Up-front costs and exit fees
- Covenants and guarantees
- Borrowing availability
- Reporting requirements
- Loan flexibility
- Approval process/contingencies
Before you lock yourself into a contract for a year or longer, take the time to interview your lender as well as senior management (decision makers) to make sure that your cash needs are understood, and your concerns are addressed. Third party trusted advisors who have experience and contacts with lenders are a great resource. By doing a little homework up-front, you will find the right lender who will work with you to create long-term sustainable growth.