31 Oct How to get your deal approved quickly and painlessly
How to get your deal approved quickly and painlessly
The old adage of only having one chance to make a good first impression applies to more than just job interviews. Companies and individuals who are looking to finance business opportunities must structure and present their business case in a way which breaks through the clutter and grabs the lender’s attention.
Paragon Lending Solutions CEO, Gary Palmer, explains what lenders are looking for, and how to ensure your deal makes it to the top of the pile
South Africans are known for their entrepreneurial spirit and, even in a downturn economy, opportunities abound. However, traditional lenders and especially the major banks are constrained by conservative risk policies, which means they are approving fewer deals. Packaging your information and presenting it in a way which makes it easy for the banks’ relationship managers to represent you when they take your deal to the credit department is almost as important as the deal opportunity itself.
What are lenders looking for?
At the outset, it’s worth revisiting the five Cs of Credit. These apply to companies as much as they do to individuals.
Character – This refers to the borrower’s credit history and their ability to repay debts. Of course the banks will do a credit check to vet any history of defaulting on loans and that you pay all loans on time.
Capacity – This measures your ability to repay your loan by comparing income against recurring debts and your debt-to-income ratio.
Capital – Lenders want to know you have skin in the game. They will look at how much capital you have invested in the deal such as risk or first-loss capital. This shows them that you are backing yourself and have a vested interest in the success of the venture.
Collateral – lenders want to know that if something should go wrong, they can recoup their loan through the sale of assets. Owning a house, for instance, will stand you in good stead if you are looking to finance an additional property.
Conditions – Interest rates and the amount of the principal debt will influence the lender. They also want to know about the fundamentals of the deal – what are you investing in and what kind of return can be expected? This is the nitty-gritty of the transaction, which needs to fall within their mandate and risk appetite.
Although the five Cs give you a good basis for what will be expected of you, it does vary depending on which lender you approach. For instance, asset managers will want to see impact in terms of social development. For them it is less about profit and more about the impact of what the deal will bring, whether it’s low-cost housing or impact in the infrastructure or renewable areas.
Different institutions also have varying risk appetites. Banks will turn down deals if they feel they have too much exposure. This may be in a certain sector such as retail for example or, when looking at property deals, they have too much exposure to certain neighbourhoods which will impact how they view new deals in that area.
Also, like it or not, lenders want to know about the people behind the deal. They want to know about their track record and reputation, their balance sheets and are looking at the consistency of information presented. Regardless of the security in the deal, institutions are lending to people and so they are looking for credible individuals who are prepared to back the transaction.
Given all these requirements, it is useful to have an independent lending partner to help you navigate the process.
Find a lending partner to put your best foot forward
Bank relationship managers will represent you when you put your deal forward to the credit departments. However, their time is limited and it’s imperative to have your deal constructed and presented in a way that requires as little additional information as possible. This is where an independent lending partner comes in.
Working together, your lending partner will help you build your business case, ensure you have all the details and data packaged in a way that is easy to understand and showcases your deal in the best possible light. In essence, we help you build your case, so that when you sit in front of the Relationship Manager at the bank, they will immediately understand your deal and take it straight through to credit to put your case forward.
Our team will also work with you to draw up accurate forecasts. These can be the most difficult aspect of presenting a transaction. Many companies inflate their forecasts. Our team tests all the assumptions behind your forecasts to make sure they are reasonable and defendable.
Most importantly, Paragon has around 115 lenders on its books, which allows it to either find the right lending partner, or put together a consortium of lenders. It also has its own balance sheet, which means we can even finance deals ourselves if we like what we see.
Working with a lending partner which is focused on solutions rather than just products means you will have the best chance of accessing finance that works for you and your company. So many individuals are happy to make use of independent wealth advisors, but they should take the same view when it comes to their business financial health. You need someone who has access to networks, expertise and who will take the time to craft a solution with you.