People vs. Loan; An Acquisition Financing Dilemma

Acquisition financing loans are specialized loan structures with a decision process that involves multiple variables. As acquisition financing lenders have grown over the years, many have adopted a volume, asset under management approach. This type of acquisition financing lender focuses more on volume of loan originations and uses a more check the box approach. They are not set up to get to the know the borrower that well nor to build a relationship with the company. These lenders issue a loan which makes capital available according to certain covenants and provisions. This loan may be attractive, but it is all based on the mechanics and language of the loan document. It is an impersonal relationship that delivers dollars at a price and certain set terms. These lenders are not in the business of relationship building but in the business of loan issuance and origination and are devoid of a personalized touch.

Relationship-based Lender in Acquisition Financing

The other major type of acquisition financing lender is a relationship-based lender. This lender has an old-fashioned, people-based approach where they have an interest in building a classic relationship that will work to the benefit of both parties. Relationship-based lenders emphasize soft information and subjective insights in their credit decisioning and can build a strong level of faith and commitment to their borrower. Often this means that when the going gets tough, the lender can continue to believe in the ability of the management and the future performance of the business. This form of people-based lender tends to be more flexible and accommodative. They are far more patient and supportive than a volume-based lender, who sees the company as a loan as opposed to a relationship. Choose your acquisition financing wisely.