5 Pieces of Advice from Lenders to CEOs

When it comes to running and growing a successful business, debt can be a healthy and helpful way to finance operations and new expenditures. The key is to take on the amount and type of debt that’s right for your business’ goals at a given point in time.

Considering debt? Here are five first-hand tips from lenders.

1. “My biggest advice, and this is an old adage, but one that is seemingly quite ignored; debt is always cheaper than equity.”

“Even expensive debt. When you bring on an equity investor, you now have a new business partner. One that will want to be involved in decisions, or if not, second guess decisions. Investors will be paid every single year, and when the business is sold, receive exponentially more money than interest paid on any type of debt, whether it be senior or junior. I would suggest taking a long-term outlook when considering short-term debt. I would also advise CEOs to speak with lenders. It never hurts to have a conversation.”

-Matthew Cohen, President, Noble Funding

2. “Do your homework and interview multiple lenders before signing a term sheet.”

“Obtain a clear understanding of fee structure and be aware of any hidden fees. Build a relationship with new lenders on integrity and open communication.”

-Karen Small, Partner, Sterling Commercial Credit

3. “Read the fine print and find someone that is going to be there for you when “it” hits the fan, because it inevitably will.”

“This is not easy to find out, but if you lean heavily on the culture of the lender and not price, you will learn a lot about where they stand. Everybody is different. Most lenders look at themselves as a lender of last resort. Choose one that looks at themselves as a lender of first resort, hires people of first resort, and treats you like a customer of first resort.”

-Ryan Jaskiewicz, CEO, 12Five Capital

4. “Consider who you are working with — really get to know the financial partner and understand how they operate.”

“Don’t let a few basis points lure you into an inflexible situation that will inhibit your ability to do what’s best for the business, and not the bank.”

-Heather La Freniere, Executive Vice President, Head of Originations, Gibraltar Business Capital

5. “Have a plan beyond the obvious needs.”

“Cost of capital is a component in evaluation but in the final analysis, how capital is deployed through leverage has to be within a plan that scales margin contribution for the business — ROI.”

-Ray Morandell, SVP – National Sales Director, Crestmark