MANY ECONOMISTS believe that the economy is finally showing some signs of recovery—the rate of job losses has been slowing, the housing market appears to have found a bottom and the financial markets have stabilized.  However, in the commercial credit markets, many potential borrowers are still finding it hard to access credit from commercial lenders.  

Obtaining a new line of credit, or extending or increasing an existing facility, remains a daunting task for even the most proven borrowers. Commercial lenders are now requiring borrowers to provide more collateral, comply with more restrictive financial covenants, seek guaranties from affiliates or owners of the business, and pay higher interest rates and fees.  

Despite this difficult credit environment, there are steps that you, as a borrower, can take to increase your chances of obtaining a loan on mutually satisfactory terms.

Step 1: Take stock of your assets and debts.

Take inventory of your business assets and be ready to provide information about these assets to lenders in an accurate, concise and up-to-date manner.  Lenders are increasingly requiring potential borrowers to secure all debts with their own assets, so be sure you have a recent and comprehensive listing of all of your real and personal property assets that can serve as collateral—including recent appraisals of these assets—ready for a lender’s review.

 If any of the prospective collateral assets are or previously were encumbered as part of your existing or previous credit facilities, you must be able to show the amount of equity that remains unencumbered in the collateral or that the collateral no longer secures the prior indebtedness.  

You should also consider your ability to obtain landlord or other lien waivers on the collateral, as well as the ability to grant lenders the right to take possession of the collateral in the event that you can’t meet your obligations under the new (or proposed) credit facility.

Step 2: Prepare realistic revenue and expense projection models.

Along with presenting and verifying collateral, lenders are now requiring prospective borrowers to take additional steps to show that their businesses are creditworthy, and will remain so. To that end, lenders often require prospective borrowers to comply with more restrictive financial covenants and document the existence of more predictable and reliable cash flows to repay the loan.  

Consequently, you should prepare realistic revenue and expense projection models and forecasts that your lender can review.  In addition, be prepared to show a history of reliable cash flow, by organizing your historical financial information in a clear and concise fashion.