It’s no secret banks across the country have tightened their lending standards, and in many cases actually reduced the size of their commercial lending portfolios, as my recent newsletter article “Banking On an Old Model for New Loans” points out. Over the last eighteen months, many business owners have found their banks unwilling to support them beyond their present lending level, regardless of their strong lending history, current condition, or the length of the relationship. However, as banks recognize that the economy is slowly recovering, some are beginning to make new commercial loans. While capital for senior debt financing is once again beginning to flow, it does so within a new set of realities: less leverage, more collateral required, stricter covenants and higher pricing spreads. This new environment requires borrowers to find collaborative ways to work with the few active albeit cautious lenders.
We have experienced success participating multiple community banks in deals that are attractive with a solid sponsor, but too big for any one lender to take on alone. Why community banks? While many large national and regional banks are in holding patterns, the smaller community banks that have survived in this environment have done so due to traditionally conservative credit standards and a local market focus. These banks are lending, but with stricter guidelines than in the past, and at maximum loan amounts that are down from their historic levels.
Partnering on loans is not an every day practice for community banks, and the process is different than closing a deal with a single lender. Choosing the right combination of lenders is critical, and requires strong relationships with each one. These multi bank loan structures take creativity to develop and longer to close than single-lender loans, as multiple stakeholders are involved. Having an experienced adviser to quarterback the deal from application through closing is critical to successfully combining lenders.
posted by Peter Ventre