Unlocking Business Financing: How to Work Effectively with Commercial Lenders

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I’ve helped lower middle market companies obtain over $100 million in financing from commercial banks. Securing a term loan or line of credit isn’t just about filling out an application; it’s about preparation, strategy, and knowing how lenders think.

Here are several proven strategies for working effectively with commercial lenders.

Start with Strategy

Any meaningful capital raise or refinancing should begin with a well-developed strategic plan. Exceptions exist (e.g., equipment financing, where collateral drives the decision), but even then, lenders like to see a plan.

Involve colleagues and tie financial outcomes to strategic initiatives. Lenders will want to see the strategy articulated as a forecast of the current year and at least three subsequent years.

  • Use a Conservative Forecast. Present lenders with one realistic and conservative base case. Lenders focus on repayment confidence; any optimistic (or upside) numbers are relevant only to equity investors. 
  • Assumptions Matter. Why do you believe you will be able to meet this forecast? Include a clear list of assumptions behind your financial model. This shows thoroughness and builds credibility.
  • Design a Standard Presentation for a Lender Audience. Don’t just hand over spreadsheets. Share your history, key components of the business model, descriptions of products and services, risks, and opportunities – just as you would to an equity investor.

Assemble Your Project Team

Successfully securing financing or structuring a deal starts with the right team. Key professionals to include are:

  • Brokers and Investment Bankers. Outside advisors can help source competitive terms. They also serve as a reality check on expectations, and will understand whether or not a lender’s proposed terms are “market” – that is, generally accepted for deals of a similar size, structure, and risk. Not only that, they can serve as the point of contact for the lenders, setting up efficient information-sharing sessions and reducing management distraction.
  • Lawyers Experienced in Corporate Financings. Don’t rely on a generalist. During negotiations, you will be up against a larger organization with substantial legal resources.  

Pro tip: Ask advisors to provide constructive input on your standard presentation. But if they suggest substantial changes to assumptions, make sure your team is comfortable. This is your plan, not the investment banker’s, and you and your company will bear the consequences if it is unrealistic.

Invite Multiple Banks

Remember the old LendingTree tagline: “When banks compete, you win”? Too many businesses stick with their incumbent bank. Contact at least three lenders to compare terms. 

Your advisors will have great ideas about who to invite to the process. Try to get at least one lender that has experience lending in your industry. 

When I managed a $45 million refinancing for an environmental services company, our incumbent bank, with whom we had a great relationship, grew uncomfortable with our financing needs as our growth strategy shifted from operating recycling facilities owned by others to facility construction and ownership. Due to an internal bank policy, they were unwilling to lend to companies with significant real estate assets on the balance sheet. 

In contrast, other lenders viewed these owner-occupied real estate assets as highly valuable. Each bank has its own underwriting criteria, so by having more lenders participate in the process, you will be more likely to find a good match. 

One final thing to consider? When selecting a lender, keep in mind that rates matter, but a long-term banking relationship can prove invaluable during downturns or when flexibility is needed. Your broker or investment banker will have a good view on the track record of the lenders, having witnessed a high volume of deals and noticing patterns in lender relationships..

What Lenders Care About

Each of the factors below serves as a signal demonstrating whether your company can be trusted to meet its obligations consistently. 

  • Reliability. Believe it or not, it’s better to meet or exceed an anemic forecast than it is to miss an aggressive forecast. Banks view your company as a supplier of interest and principal payments. If financial results slip, they will start to risk-adjust your ability to repay.

    This is most crucial during the months when you’re meeting with lenders and negotiating terms. Your company will be asked to forecast the full year to reflect current results. Any significant deterioration can cause lenders to ask for more restrictive terms and higher pricing. Worst case, they may even withdraw from the process.
  • Financial Covenants. Loan agreements include financial covenants specifying minimum profitability (as measured by EBITDA) and ratios such as minimum Debt Service Coverage Ratio (DSCR), maximum leverage (total borrowings divided by EBITDA). These serve as early warning indicators for the bank, and failing a covenant test is usually just as serious – from a legal standpoint – as missing a payment. 
  • Collateral and Guarantees. Expect scrutiny of pledged assets and, depending upon the situation, personal guarantees. If a borrowing amount is tied to accounts receivable and inventory (the “borrowing base”), the bank will have the right to assess the value via special audit procedures.
  • Reporting. Be prepared for ongoing obligations – monthly or quarterly financial reports, ratio compliance reports, borrowing base reports, and an annual financial statement audit. Are your accounting team and systems ready to handle this extra workload?

The Hidden Value of the Process

Even if you’re not actively seeking financing, going through this exercise has immense value. Strategic planning, scenario modeling, and lender-style financial discipline strengthen your business for future growth and resilience.

Working with lenders is as much about preparation and perspective as it is about numbers. By bringing strategy, transparency, and the right partners to the table, you increase your chances of securing the capital you need – and on the terms you deserve.

Preparing to obtain financing? We can help you be better prepared for lender approval. Book a free consultation with our team.