*Bob McCarrick is chief commercial officer for lending at GE Capital Corporate Finance and specializes in providing commercial loans and equipment finance to midsize companies for growth, acquisitions, turnarounds and balance sheet optimization.
THE nearly 200,000 companies that comprise the U.S. middle market continue to prove their vitality.
According to a third-quarter 2013 survey of 1,000 chief executive officers, chief financial officers and other corporate-suite executives conducted by the National Center for the Middle Market — a partnership of The Ohio State University Fisher College of Business and GE Capital — 63% of middle-market companies reported top-line improvements over the past 12 months. Sixty percent project revenue growth in 2014, with increases of around 4.4% anticipated.
Of course, this group is not immune to economic headwinds and other business challenges. Concerns about health care costs remain a vexing problem for these companies, along with uncertainty over regulations and economic turbulence abroad.
Nevertheless, middle-market managers are increasingly prepared to invest in the future.
Sixty-one percent of respondents plan to invest additional capital rather than hold onto excess cash, up from 56% in the third quarter of 2012.
Survey respondents' desire to invest in areas such as information technology, acquisitions and capital expenditures is serendipitous given today's very favorable lending environment. Lenders who understand the middle market are eager to put their money to work and help these companies grow. Nevertheless, every situation is unique.
Here are 10 guidelines to help borrowers be more successful when seeking financing:
1. Think ahead. The best time to approach a lender is before your company needs capital.
Putting time and effort into building a relationship and educating a potential lender about your business prior to applying for a loan can have a big impact. If you wait until the company needs money in a hurry, financing options may be limited.
2. View the lender as a strategic supplier. Relationships matter. You and your lender should work with a set of shared goals. Seek lenders with a "builders" mindset that want to help grow your business.
3. Be up-front about your challenges. Trust underlies all credit relationships, so don't sugarcoat your challenges.
By being up-front and communicating clearly with the lender, both parties can avoid wasting valuable time and resources. The lender is also better equipped to design solutions.
4. Polish your narrative. Every business has a story. Tell your organization's story in a way that highlights successes and acknowledges challenges.
Create a forward-looking business plan. Organize financials, and be sure they align with the story.
5. Get detailed about details. Mistakes in documents, even if they seem inconsequential, can cause the lender to lose confidence in you and your business.
Demonstrate that you understand all the key terms in covenants, contracts and credit documents. Be prepared to show specifically how your company will meet its commitments.
6. Find a lender with industry specialization. A lender with experience in your industry will better understand your business plan as well as your competitors' positions in the industry and the challenges they face. That knowledge will be helpful in structuring a financing solution and maximizing the credit available to you.
If your business has seasonal highs and lows, work with a lender that understands your fluctuating cash flows so that it can structure payment plans accordingly.
7. Keep lines of communication open. 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, contact the lender as soon as possible and explain the impact on your company's ability to meet its financial obligations. Advance warning helps the lender be as flexible as possible.
8. Put yourself in the lender's shoes. Think with the mindset of both a borrower and a lender. 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.
9. Learn from others. Learn about your competitors' financing structures. By taking the time to do this homework, you can improve your discussions with lenders while increasing the chances of finding a workable financing solution.
10. Optimize the cash flow. Cash flow is king. A lender needs to understand all monies coming into and out of the business as well as payment histories. To impress the lender, executives should demonstrate ways they're trying to increase cash management efficiencies.
Having the processes and procedures in place to follow all 10 guidelines consistently is not easy, but the effort is worthwhile. Doing so will lay the foundation for a solid, long-term borrower/lender relationship.