Getting banks to approve commercial deals is no easy game anymore.
Go back 10 years (actually, make that about 11 and a half to 12, before that dirty 3-letter word “GFC” came into existence), if a deal made sense, then just about every bank would write it.
It came down to who you had a relationship with, or what price they were willing to write it at.
Now though, there is much more involved in getting non-vanilla deals approved.
In our opinion, this risk-adverse environment is here to stay.
So when everyone is saying that banks don’t want to lend, how do you get commercial finance approvals?
The factors that we consider most important when seeking commercial debt – whether for property or business/corporate deals – include:
1. Knowing WHICH ORGANISATION to approach
Deal appetites vary wildly between each bank, as well as non-banks. Heading down a long path with one institution or fund manager, to ultimately find out that they’re not keen on the deal, can waste a HUGE amount of time, leaving you back at square one.
2. Knowing WHICH INDIVIDUAL to approach
We often say “you can take the same deal to two different bankers within the same bank and get two different results”.
If we’re approaching a certain bank, we don’t just go to “the bank”.
We choose a specific banker based upon that particular deal. One who understands that industry, who has a strong internal relationship with credit, and who has the drive to get a deal done.
3. DETAIL, detail, detail. Or not. It depends.
Sorry for the confusion, but this is a tricky one.
It depends on whose eyes it’s for. Banks and some fund managers want typically love reading War & Peace; but some see the size of the book and say “oh man, that’s too hard, I’ll pass”. In every case though, it is vital to ensure that reader understands the company/project and industry, including risks in an open and honest fashion.
The other “it depends” factor, can relate to timing of the whole story. Sometimes a deal can go completely differently if you get the lender “a little bit pregnant first” – get them committed and in love with the deal, before telling them the entire story. However, the flip-side to that is, you have to be careful when you use this tactic and with what information – do this with something that is deal-critical and you’ll just p___ everyone off for wasting their time.
4. DEAL STRUCTURE
Notice how I’m putting this piece last?
As much as banking & finance is seen as all numbers, there’s actually a bit of both art & science to putting deals together well.
Every bank and non-bank will want to structure things a little differently to fit inside their box, but the deal naturally needs to fit with the borrower as well.
In the search for a “good deal” (or even a deal full stop), many important parts of a deal are often overlooked, which should include careful structuring and negotiation of not only the price (interest rates & fees), but also the WACC, facility type, repayments, term, security, conditions & covenants/undertakings.
Then there’s an absolutely critical piece that’s often overlooked – “the devil is in the detail” – the fine details in the final loan & securities documents, which should always be reviewed and negotiated where appropriate.
Looking for Commercial Debt for your Property project/portfolio, or for your medium to large Business?
At STAC Capital, we provide professional commercial finance advice for borrowers seeking from $3m to $100m.