Six Ways to Ensure a Successful Relationship with an Asset-Based Lender
Frank Goldberg, Chairman/CEO
Briar Capital
Houston, Texas
www.briarcapital.com
Do you really know the asset-based lender you are referring your borrowers to? Who makes its decisions and where are its decision makers located? Does it understand the local marketplace? Where does the asset-based lender get its money and what are its policies and procedures?
The fact is, the more you know about an asset-based lender – from the way it operates to the sources of its funding – the more confidence you’ll have knowing your borrower’s needs will be addressed in a professional and expeditious manner.
The fact is, your credibility and the relationship with your customer is at stake whenever you make a referral, particularly one involving an alternative lending source.
With this in mind, consider these six steps to ensure you not only provide your customers with an informed recommendation of an asset-based lender, but also one that leads to a successful outcome.
1. Always Retain The Relationship With The Borrower
Since asset-based lenders are transaction, not relationship oriented, it is critical that you maintain the “lead” in the relationship with the borrower. Just because your bank was not able to service a borrower’s needs doesn’t mean you should forego presenting your other services (which non-bank, asset-based lenders do not offer). Keep in front of the customer with treasury, deposit accounts, lock box, sweeps and other day-to-day banking products. In time, the challenges facing your customer will be solved and they will return to you for their credit needs.
2. Conduct Due Diligence on Your Asset-Based Lender
Since asset-based lenders operate in a non-regulated environment, anyone can get into the business. With this in mind, up front due diligence is critical. When considering an asset-based lender, speak with some of its past borrowers and other banks that have sent transactions to the company. How easy was the asset-based lender to work with? Did it demonstrate adequate flexibility and fair and reasonable business practices? Are its policies and procedures consistent with the borrower’s needs. Find out where the asset-based lender secures its funding, its overall financial condition and the people involved in the organization.
3. Make Sure Your Asset-Based Lender Isn’t a Factoring Shop in Disguise
Factoring companies only buy receivables. They don’t advance against inventory, real estate or equipment. Factoring is much more intrusive on the customer and typically is more expensive than a revolving line of credit. Keep in mind some factoring companies claim they offer asset-based revolving lines of credit, but most don’t. Check their balance sheet to make sure. If it reflects purchased accounts receivable, then they are not asset-based lenders.
4. Consider an Asset-Based Lender’s Geography, Industry Focus and Trade Territory
A good asset-based lending partner should present the same benefits that today’s community bankers present to borrowers. Does the asset-based lender in question present immediate access to its decision makers? Does the organization understand the local marketplace? Are its decisions made locally? Are there certain industries the asset-based lender focuses on? Are there some they exclude?
5. Find Out Who is Really Making The Loan
Make sure you are recommending an entity that is actually making the loan, not a broker. Decision-making and communication are much easier when the borrower can speak directly with decision makers, and that is governed by whose money is being loaned. Moreover, the asset-based lender in question should offer a diversity of lending products such as real estate loans, inventory, and accounts receivable financing.
6. Prepare Your Borrower for What to Expect
The borrower needs to understand the close-working nature of an asset-based lender. Specifically, your borrower’s business progress will be monitored on a weekly and sometimes daily basis. Borrowers who understand this up front – before they meet with an asset-based lender – inevitably are more comfortable in the relationship.
As long as banks continue to face difficult loan circumstances, asset-based lenders will play an important role in helping borrowers meet their financing needs. Use these criteria to evaluate the asset-based lender you are recommending. In the long run, a successful partnership is beneficial for everyone.
About the author: Frank Goldberg is chairman and CEO of Houston-based Briar Capital LP, an asset-based, nonbank lender that provides working capital and real estate financing for small and mid-sized businesses. He has been involved in the management of financial institutions since 1970. He founded Fondren National Bank in Houston, TX, in 1985 and grew the bank to $85 million in assets before it was sold to Compass Bancshares in 1994. He later founded CompuBank, the first federally chartered electronic bank. He may be contacted at fgoldberg@briarcapital.com.
