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So, the initial interview went great and you are being called back for round
two. The first visit was purely a fact-finding mission for both sides. Now you
know that they are interested in you, and you are also interested in them. But
this meeting will get down to brass tacks, and it may come down to one simple
question: do they like you enough to provide the salary package you are seeking?
Salary negotiations are never easy, especially if your negotiation skills are
poor. Our Negotiation Training classes are designed to get folks like you up to
speed so that you will know how and when to ask for what you want, and how to
respond when they counter with what they want. Our negotiation skills training
will give you the confidence you need to close a deal that works for both sides.
When working with a private lender vs. a commercial bank, there are
different considerations to keep in mind.
Working with commercial banks for loans is essentially a one-way settlement
process. The bank offers certain terms as to the interest rate; an assortment of
upfront fees; the term, principal and interest repayment formats and due dates;
collateralization; and other closing costs associated with screening and
obtaining the credit. Entrepreneurs are put in a position where much of the
interaction with the banker is not so much negotiations, but the lending
institution requesting various types of documentation from the business owner in
order to proceed with the deal, with the prospect being that the terms might
improve somewhat if certain borrower profile requirements can be met. In the
end, the final loan package generally represents the lender's terms more so than
the borrower's unique requests regarding the funding structure.
Working with private lenders, however, should definitely be much more of a
two-way settlement process. Too often, though, entrepreneurs assume the
creditor's offer of terms is as rigid as that of the commercial banker's, and
companies can end up with a final loan package that overly favors the lender's
requirements, rather than the borrower's unique requests.
There are two basic rules for raising debt-funding from private sources.
First, know exactly what terms the firm can handle prior to entering into a
dialogue with a lender. And second, negotiate everything associated with
establishing the final terms for the proposed loan package.
With regard to the first rule, entrepreneurs should develop their "dream"
loan program and put everything down on paper that they would like to see in the
final deal. This requires some front-end work, but it is well worth the effort
to head into the funding negotiations well-informed of the range of possible
terms and very clear on exactly what fits the business and what does not. As a
business owner, you should define a clear "uses of funds" schedule on how the
loan proceeds will be allocated in the firm. You should also examine various
scenarios of how to pay for fees, how much the business can afford to budget
each month or quarter for principal reduction and interest, and flexibility on
accessing funds when market opportunities surface.
When it comes time to negotiate everything, business owners are in a much
better position dealing with a private lender than with a commercial or
community bank. Many private creditors ask for significant concessions from the
borrowing firm and can present these in a manner that makes them appear to be
set in stone. All lenders—whether commercial or private—want to minimize risk
exposure, but the entrepreneur should see this as an opportunity to make a
presentation that demonstrates the numerous reasons why this loan will not be at
great risk. In developing the "dream" set of terms, the entrepreneur can
establish solid financial support for the loan, terms that fit easily into the
company's periodic cash flow and assessment measures that accurately reflect the
growth prospects that the loan can support.
If a private lender proposes allocating funds for the business in three
tranches, with only interest due the first two years, but then the total
principal accessed rolled into a new fully amortized loan at a higher interest
rate in year three, the entrepreneur can counter with funding parameters that
have already been closely examined to be a great fit with the firm's cash flow
and investment opportunities. When a lender wants collateral, the business owner
can counter with a staged collateral schedule or a flexible rolling retirement
of assets pledged as principal and interest are paid, and the company hits
predetermined performance benchmarks. If business owners take the time to
carefully preplan the best credit terms for their firms, and are then
comfortable engaging in a dialogue with the private lender, the result should be
mutual compromise from the creditor and the borrower on final terms that reflect
two parties working together.
By David Newton
Cincinnati |
