The good news is that many lenders are actively seeking new opportunities to put their money to work. When reviewing a credit application, they're interested in a variety of factors beyond a company's cash flow and credit history. While every situation is unique, here are 10 tips to help borrowers be more successful when applying for financing.
Reach Out Early
What's the right time to approach a lender? The best time is before the company needs capital. Build a relationship and educate a potential lender about the business prior to applying for a loan. If an executive waits until the company needs money in a hurry, financing options may be limited.
Treat the Lender as a Strategic Supplier
Relationships matter. The company and its lender must work with a set of shared goals. Smart borrowers take the lender's perspective into account while trying to find two-sided solutions when financing challenges arise.
Truth Trumps: Be Transparent
Trust underlies all credit relationships so be upfront with a lender about any challenges. Don't allow a lender to invest time and resources into the underwriting process only to find that there are discrepancies in the information provided. Smart borrowers see financing challenges as opportunities to demonstrate their grasp of the issues facing their businesses.
Tell a Compelling Story
Each trucking executive should tell his story in a way that highlights successes and acknowledges challenges. Create a forward-looking business plan, and organize all financial statements. Lenders understand the impact of the downturn on the overall trucking industry. They need to see how the business overcame obstacles and solved problems, and how it plans to move forward now.
Sweat the Small Stuff: Get Documents in Order
Every interaction with a potential lender carries a lot of weight. Mistakes, even if they seem inconsequential, can cause the lender to lose confidence in a business and its leaders. That's why it's important to understand all the key terms in covenants, contracts and credit documents. An executive should be prepared to show specifically how his company will meet its commitments. One effective way to facilitate the process is to put a cover letter on the business plan that includes important dates and obligations.
Find a Lender Who Understands the Trucking Industry
An industry-savvy lender will have a better understanding of a reasonable business plan as well as each company's position in the industry. That knowledge will be helpful in structuring the financing solution and maximizing the credit available to the borrower. Some lenders are even customizing financial products for the trucking industry, such as leases that mitigate excess mileage charges while providing for rebates on underutilized units.
Communicate, Communicate, Communicate
A lack of communication can damage financing prospects. From day-to-day details to big changes, keep the lender informed. If an unexpected event occurs, say, a particularly bad accident, contact the lender as soon as possible, preferably before it hits the news. Be prepared to explain its impact on the company's ability to meet its financial obligations.
Think Like A Lender
Every trucking executive should think with the mindset of both a borrower and a lender to get the most out of the relationship. Whether the discussion involves a credit line increase or a new competitive challenge, understanding the lender's thought process and considerations will lead to a more fruitful interaction. For example, the "amend and extend" process can be complex. Smart borrowers have the foresight to contact their lenders 18 months before the loan comes due to make adjustments.
Know Competitors' Financing Structures
Learn about the financing structures of similar companies in the trucking industry. By taking the time to do this homework, borrowers can improve their discussions with lenders while increasing the chances of finding a workable financing solution.
Optimize Cash Flow
Cash flow is king. A lender needs to understand all monies coming in and out of the business as well as payment histories. To impress the lender, executives can demonstrate ways they're trying to increase cash management efficiencies.
With careful preparation, borrowers that work in a spirit of collaboration with their lenders can boost their chances of success. Borrowers should look to their lenders to be flexible, have enough capital on hand to support them through both good and bad times, and have the industry expertise to understand the true value of the collateral used to secure loans. That will help maximize the amount of financing they can extend.
Dan Clark is the president and general manager of GE Capital's Transportation Finance business. Located in Irving, Texas, Transportation Finance serves all aspects of the U.S. transportation industry, including manufacturer, dealer and end-user. Products offered include wholesale, retail and leasing.