What Happens Next?

Most large enterprises tend to be fairly stable in the medium term (except for those in high tech). On the other hand, small and medium enterprises have at least a 50/50 chance of experiencing significant changes, whether positive or negative, during the average term of a lender-borrower relationship. So, the question we must ask is how will the lender react when it becomes aware of the borrower’s changed circumstances. In other words, “What happens next?”

The agreed structure and pricing aren’t so important now. The lender’s reaction is what is critical. If the borrower has an opportunity to materially increase its size and profits, will its lender thoughtfully offer a revised plan that provides what is necessary for the borrower to plow ahead?

However, if the borrower faces a challenge to its viability, will the lender thoughtfully consider how it can safely be of help or will it have a knee-jerk reaction and panic?

What will happen next is foremost on our minds at Capital Access Partners when we are engaged to assist our clients in securing new capital. We strongly believe that COMPATIBILITY with their capital providers is even more important than price and structure. “Optimal Pairing™ = Optimal Results."

Some of the things we consider include:

• Does the lender have a working familiarity with the industry?

• Does the lender exhibit a very good understanding of the borrower’s current circumstances and its near-term potential OR is the lender merely looking at how it can get the deal past its credit committee?

• Does the lender provide access to its key decision makers?

• What is the lender’s reputation?

• Is the lender financially stable?

When it comes to “What Happens Next?,” you can be certain Capital Access Partners knows the answer.

Can you see it coming?

When a business is heading in the wrong direction, yes, you can see it coming. It’s not always obvious, but whether you are the borrower or the lender it’s possible to detect warning signs if you are looking for them. If your focus is solely on the current financial results, both parties may be in for a nasty surprise.

Current financial results can provide a great picture of what has happened recently, but they are often a poor indicator of what’s just around the corner. Rather, what is necessary is a deep understanding of what has made the business viable so far. If the elements that have contributed to its success begin to change, you must determine their potential impact going forward. Some of the elements that can negatively impact future results are:

• departure of key employees;

• management decisions to alter strategies regarding sourcing, pricing, and marketing;

• capital asset expansion plans;

• margin deterioration with no reasonable plan to fix;

• technical advances affecting the industry with little management concern; and

• revenue increasingly concentrated in a few customers.

These and many more elements need to be understood so that both the borrower and the lender can communicate clearly about what lies ahead. They can then work together to give the business the opportunity to remain viable and thrive in the years ahead.

Capital Access Partners is committed to advising its clients on the best lender to accommodate their long-term plans. We strongly believe in compatibility between lender and borrower. Compatibility is so much more important than the cost and structure of the capital. When a borrower’s circumstances change, whether for the worse or the better, it’s reassuring to know that the lender is compatible. That means the lender has a good working knowledge of the industry in which the borrower operates and understands in timely detail the circumstances of the borrower.

Our focus on “Optimal Pairing™” to achieve “Optimal Results” provides both parties with the confidence that their relationship will be satisfying and long-term.

You may think it's expensive to change lenders

You’re right – way too much!

Consider this brief hypothetical conversation between two friends:

Bob – Carol, I heard you changed lenders recently. How come?

Carol – We had to; ah, more to the point, we were forced to.

Bob – That sounds more than annoying.

Carol – Actually, yes, but I have no one to blame but myself. Not too long ago, I made the difficult decision to accept an offer from a lender that came recommended by advisors I respect.

Bob – It’s nice to have a recommendation. I assume you talked to lots of lenders.

Carol – Oh yes, plenty, probably too many. It was very time consuming. Bob – On what did you base your decision? Carol – Well, their representative and I hit it off well, but mainly they offered the best structure for our needs at the time, and they were the cheapest. Bob – Nothing wrong with that, Carol. Carol – You’d think so, Bob, but I should have been a lot more thoughtful. Here I was taking on a lender for the long term that would provide the working capital I needed to realize my ambitions, but my decision to go with them was based purely on the short-term attraction of their offer. Bob – What else is there to consider? Carol – The long-term relationship, Bob. How was I to know what my business would need as circumstances in the market evolved over time? When they did change, I discovered my lender was either uninterested or incapable of adapting to my changing needs. It was devastating. I explained why their reaction would clearly hurt our business and they explained why they could not accommodate. Reasons I heard included I was or would be the wrong size exposure for them and they were not that familiar with my industry. Ok, but why then did they take me on in the first place? I bristled and wasn’t sure I should blame them or myself. Looking back, I realize I should have checked them out more thoroughly. At the very least, I should have sought access to some professional advice. I have now received great professional advice and am confident my new lender is much more compatible. Bob – Carol, I’m so happy you survived that ordeal and hope you are now back on track. Carol – It was costly to change considering legal fees, lender due diligence fees, and the time spent by me and my management team. But we had to do it. And, yes, we are finally back on track.

Regretfully, this scenario plays out too often in the real word. Capital Access Partners exists so that responsible borrowers may avoid being forced to change lenders when their circumstances change. At Capital Access Partners, we firmly believe that businesses seeking capital of any kind should pay maximum attention to compatibility with their capital providers. Optimal Pairing™ = Optimal Results.