14 necsema M2M Tips for a Seamless Commercial Loan Financing Experience While this article does not represent financial, accounting, or legal advice, it offers a select compilation of best practices and ideas to consider. Read a complete version of this article at NECSEMA’s Online Community, available for NECSEMA members. A multi-location convenience and gas operation with multiple commercial loans was asked by its bank to seek refinancing options elsewhere, as the lender had reached its lending limit with the company. This happens when a borrower’s growth outpaces that of its commercial lender. The company quickly identified a new lender from a list of prospects by engaging a loan broker, believing it would speed up closing and secure better terms. What followed resembled a runaway train nightmare, despite the company’s owners and CFO trying to manage the financing process. The company entered its busy season. The broker shifted focus to other deals and lacked resources and experience to manage lender’s underwriting, decisioning, and closing. The lender also got busy with its own pipeline of deals to manage this for the borrower. The relationship manager (aka loan officer) requested various financials and documentation. The borrower submitted what they thought was complete but lost track of what was provided and what was still missing. The lender would kick the proverbial email down the road, relying on the borrower to follow up, which the borrower did not do. Two weeks of silence followed, then requests for missing items. This cycle has been repeated for over a month. Underwriting and decisioning dragged on for weeks, with sporadic and overall poor communication from the lender, with several delays and rescheduling. Both sides were too busy to stay on top of the process. After about three months, the loan was finally approved, and attorneys began drafting documents – triggering another round of delays. The borrower’s attorney initially overmanaged the process, taking his own initiative to renegotiate business terms already agreed upon, driving up legal costs and introducing more confusion into and delays to the process for the borrower and the lender. Eventually, the borrower asked them to back off. Then came legal title issues, undischarged liens, and modifications to subordinations, adding several more weeks. By loan closing, everyone was exhausted, calling it “the deal from hell.” Post-closing issues lingered for several weeks after. Some would say that everything that could go wrong went wrong. In reality, many of these issues arise on other deals, but they can be and are typically managed, without getting out of control. In a perfect world, commercial lenders and borrowers would have proper staffing to manage their respective parts. One side would take a lead in managing the overall deal. Yet, we don’t live in a perfect world. Proper financing requires significant resources to ensure smooth sailing. Below are some ideas for you to consider when managing your debt (or equity) financing. • Dedicated “project” manager. Unless you have a commercial lender that would oversee and manage your debt financing process, a) allocate internal resources to have a dedicated project manager to manage your borrower’s side and b) agree with your lender who is providing the oversight to ensure successful and efficient financing process. If you choose your attorney to be involved in business terms’ negotiations and managing parts of the financing process, make sure you have an attorney with strong finance background, ongoing experience, and resources in this type of deal management work. You will pay more but in some instances it may be worth it. Some of the best attorneys are the ones that would tell you what is a legal matter and what is a business matter that you’d need to decide on. • Understand commitment involved. There are several moving parts to debt financing, from putting a package together, doing your internal financial analysis of needs and projections, and screening lending options to signing off on a term sheet, going through underwriting and lender due diligence to complete the analysis, loan decisioning, and various pre- and post-closing phases. In addition, there are numerous parties involved that either work for you or your lender. Some of them you will need to manage, and some are for lenders to manage. Also, beware of not meddling with some components of lender financing, such as appraisals, or you may lose a deal. All these moving parts require considerable resources to ensure that you will have a competitive and efficient debt financing process. • Experience and qualifications of your advisors. If you decide to engage an outside party to manage your debt financing process, ensure that they have a strong commercial lending background, manage your size and type deals on a regular basis, truly represent your needs (not just trying to secure the largest deal and the lowest rate), and understand lenders needs too. The most important thing to me would be if the service provider understands how your deal will be perceived by lenders, and that the ROI is worth the cost of their service. • Anticipate and solve for commons problems. While it is not possible to account for all delays and obstacles on the path of debt financing, especially in the convenience, gas, and related
