Choosing a lender and negotiating a deal

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Jun 05, 2005

While it's tempting, you shouldn't just pick the lender that offers the lowest total cost. Instead, consider:

  • the lender's size and ability to meet future needs
  • the lender's knowledge of your business
  • the lender's speed at making decisions (especially when obtaining a line of credit or other financing that must be renewed)
  • the loan officer's status in the organization and the frequency with which loan officers change
  • the costs and commitments imposed, for example, compensating balances, which some practices prefer not to maintain
  • the lender's flexibility in responding to special requests, such as foreign letters of credit.

After you've found a lender, prepare to negotiate. Each party seeks an advantageous position, and the terms can influence whether the lender will fund your project. Here's what's negotiable:

  • the total loan amount
  • interest rate and fees
  • loan term
  • repayment schedule
  • amount and type of collateral
  • guarantees
  • restrictive covenants
  • acquisition of additional insurance on the life of the owner, key manager, or guarantor
  • periodic financial reporting and the extent of accountant involvement.

Gary I. Glassman, CPA, is a financial consultant and partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member.