Currently, it seems like lenders want to lend and prices are down. But is that the true state of corporate lending? Recently two PE partners asked CAPX what we think is happening in the debt markets today, since CAPX is always “in market” with deals and we talk to both bank and non-bank lenders every day. This article describes our response to what is really happening BEHIND the curtain in today’s debt markets. Overall, we believe the glossy lender pitches are missing some real life details – important nuances that savvy borrowers need to understand and anticipate to secure financing with efficiency and certainty.
Key Insights
Lenders want to lend, if you have a deal that fits their ideal and tight credit box
You might have to wait to get feedback, even negative feedback
Multi-level marketing
Yes, it can take 2 months to close easily
The upshot
How can CAPX help?
Lenders want to lend, if you have a perfect deal that fits their ideal and tight credit box
There is no negotiating with the credit teams anymore, their decisions are binary and they are sticking with them. Lenders at every step of the credit spectrum want to do deals that fit their ideal risk/return profile. Which means, most credit guys turn down deals that they perceive to be outside the tightened credit box, never mind the potential higher returns. This applies to banks AND a majority of non-bank lenders. What happens when the lender you approach finds a little blemish on your credit story?
You might have to wait to get feedback, even negative feedback
A lender we spoke with confessed that a lot of their time was spent dealing with portfolio deals gone sideways. Plus, with credit police ready to say no to anything they show, a hint of imperfection earns a new deal “bottom of the pile” status, instantly. 18 months ago, deals launched on CAPX used to get multiple term sheets between days 3-5 after launch. Now we are getting one at the end of 5 days. Lenders are super focused on executing their ideal deals, lest the credit box tighten again – bird in hand, etc.
Can you get better terms, higher liquidity and lower interest rates for your company?
We can help you think through your options. Click here.
Multi-level marketing
Not the AmWay kind, we are referring to marketing to multiple lenders in multiple risk / return layers, simultaneously. You want to do this to quickly find lenders that can do the deal, and to have a back up plan, just in case the chosen one doesn’t close. We have never experienced predictability to close so low, ever. Even if a lender issues a term sheet, a lot can happen before the wire hits your bank account – their fund may run out of capital (or couldn’t get to that first close on the new fund), credit doesn’t like something they saw, another portfolio deal in a similar industry defaulted or the underwriter wanted to protest the end of remote work – we have seen all of these scenarios in last 18 months (except for the one about remote work, but we suspect that happened too!).
Yes, it can take 2 months to close, easily!
When our founder worked on the bankruptcy financing deal for Delta Airlines, it went from TS to commitment and fully negotiated credit docs in under a week, and they were on the hook for the full amount! Not sure even such high profile and lucrative deals can move so swiftly in today’s market. So, build buffers in your process – buffers to get to multiple lenders, get response from them and to close the deal. And, most importantly, buffers in case a lender backs out of deal at the last minute due to changes from their credit committee. You may wonder, is it really this bad?
What type of lenders are right for you?
Get a market read from our CEO, Rocky Gor. Click here.
The upshot
No, it is not dire. If you can simultaneously get to multiple lenders and find the ones that like the risk / return mix for your deal, you will most likely get the cheapest rate offered in the last 3 years. Yes, lenders are hungry to book deals that fit their tight credit box. The trick is to find that lender, without having to spend months talking to half the market.
Have you thought through your pitch for lenders?
We can help you prepare for an efficient outcome. Click here.
How can CAPX help?
CAPX is a secure, web-based corporate finance marketplace that matches middle market companies seeking more than $5MM with relevant lenders nationwide, and uses advanced algorithms to streamline workflows and accelerate deal execution. With CAPX, middle market borrowers can:
- Review and compare multiple credible structures to obtain the capital you need without having to consult an expert
- Access debt capacity under any capital structure scenario and identify the number of lenders available to provide capital, irrespective of credit quality
- Find matching lenders – both banks and alternative lenders – from across the country without networking or meetings
- Use our online tools to craft a compelling, lender-ready credit pitch once and instantly distribute to multiple lenders of your choice
- Obtain competitive rates and terms in days without repetitive calls and meetings
CAPX is designed to be a self-serve platform with no direct cost to borrowers, since CAPX is compensated by lenders when deals close. Optional CAPX Assist services are available for a fee to help borrowers structure and launch deals, obtain term sheets, as well as negotiate and close deals with lenders, if desired.
