Banking Law & Finance

Practice Advice for Borrowers Seeking Credit in a Tight Market

By: John D. Cromie, Thomas M. Scuderi and Noel D. Humphreys 

Although the credit and financial markets have healed significantly from the low point of the recent economic downturn, lending standards for all borrowers have been tightened. Businesses looking to obtain or expand lending relationships should be mindful of the new lending climate. For those businesses that are well positioned and prepared to address the new reality, credit is available provided borrowers are proactive in meeting lenders’ standards and requirements. While it may seem simplistic, we recommend that borrowers work to establish and maintain good communication with their lenders. Business attorneys and accountants should be included in this dialogue. Timely reporting of financial results and disclosure of potential andactual problems, can serve businesses well in fostering a sense of partnership with lenders. If there areproblems that have been anticipated or identified especially in terms of financial performance, borrowers should work to proactively take steps to address and minimize any negative repercussions. The more proactive/borrower can be in demonstrating to their lender that issues or concerns are isolated and non-recurring, the more responsive and flexible lenders can be. We also recommend that businesses work to be open to structuring strategies proposed by lenders to enable lenders to meet stricter credit and underwriting requirements. Where possible, collateral mortgages on real estate, security interests in fixed and/or operating assets and personal guaranties are all effective ways of providing collateral security to lenders to help facilitate credit. 

For those businesses that are well positioned in the marketplace, the current economy presents historic opportunities to grow their firms by strategic acquisition. These opportunistic acquisitions can be funded if the business is well positioned, the business plan or strategy for the acquisition makes sense, and the deal be well documented and justified from a financial and underwriting perspective. 

While there is no question that the rules of the road have changed for all businesses, banks are making loans and well positioned businesses that are proactive, can reap also the benefits of historically low interest rates. 

For more information about Connell Foley’s Banking Law and Finance Practice Group, please contact John Cromie, Thomas Scuderi or Noel Humphreys so that we can assist you with our wide ranging experience in the areas of Business Law and Financial and Banking Services.