Step 3: Identify potential loan guarantors.

Lenders are no longer relying solely on collateral security and the repayment prospects of a borrower’s business when deciding whether to extend a loan. Lenders have tightened their credit policies to require that guarantees be given by affiliates or individuals with an interest in the borrower.  Lenders may request these personal or entity guarantees in lieu of or, in many cases, in addition to asset collateral.  

Be sure you are ready to identify possible sources of such guarantees, including founders, company principals and key investors.  These potential guarantors should also be willing to provide collateral or document adequate cash flow projections to back up their guarantees.

Step 4: Consider offering equity rights.

You should also consider offering equity rights in your business to make the relationship more durable and further align your business interests with potential lenders.  A share in your profits through the issuance of warrants or convertible debt may reduce the interest rates that lenders might charge on a credit facility and help increase your chances of getting a loan.

Step 5: Think of prospective lenders as full-service financial institutions.

Lenders often view borrowers as possible customers of all of their financial services—not just their commercial credit services.  Therefore, you should adopt a similar approach by viewing lenders as full-service financial institutions—not just credit sources.  

Lenders may require you to keep commercial bank accounts with them for the dual purposes of security and permitting them to monitor your cash flow, but doing so may also help enhance your relationship with those institutions.  Additionally, by utilizing multiple product offerings from your lender, you may increase the likelihood of successful negotiations should any future issues arise under the new credit facility.

Step 6: Seek help from a reputable auditor or accountant.

Early in the process of seeking a new credit facility, prospective borrowers should have preliminary discussions with respected accounting or auditing firms whose people can help them prepare the financial statements that are often required by lenders.  Be sure to maintain a current list of potential auditing firms to help reassure your lender that the required financial statements will be prepared and audited in a timely manner once the loan is made.

Step 7: Consider venture capital or hedge funds.

If you’ve been unable to obtain credit from traditional commercial lenders, you may want to consider alternatives. Venture capital funds and hedge funds have been making fewer equity investments in businesses recently due to the current economic conditions.  As a result, some of these funds have been more willing to make loans rather than equity investments.

Although the economy is getting stronger and a new sense of normalcy is emerging, it is likely that the lending climate will remain a challenging one for the foreseeable future.  With some careful planning and creative thinking, however, you can help increase your odds of obtaining a loan that’s a good fit for you and your business.