The Art of Saying No to a Deal

The middle market lending world is a complicated place. It is segmented by different types of lender, such as asset based or cash flow based, and type of institution, such as bank or independent debt fund.

Within each segment, lenders are focused on company size as well as a host of additional criteria.

The criteria is usually centered on industry, profitability and deal type. Given the segmentation in the market and the plethora of unique lender criteria for making a loan, it is not an easy task to find the right lender for your deal.

The reality is that most lenders reject far more loans than they approve. Whether the loan it too small, not properly collateralized, or in the wrong industry, lenders say no most of the time. Given this, one would think that lenders would be well versed in the Art of saying no, especially to advisors they wish to see future deals from.

The truth is that most lenders are genuinely lacking in this skill and usually deliver a terse rejection via email. This type of rejection, which may be perfectly appropriate given the lack of fit, is invariably a boring recitation of why the deal does not fit.

Within this rejection, there is a complete lack of acknowledgment of any positive aspects to the deal. Also usually missing is actionable information such as other lenders that they may know who might be a better fit.

Given the reliance that lenders have deal referral sources to continually send them deals, it would make sense for them to improve at this skill. Here are 4 tips that lenders can use to improve at the Art of Saying no.

1. Validate the Advisor’s Effort to send you the deal – some lenders act like they are doing you a special favor to review your deal. What they have no concept of is the amount of front end work and effort that went into the creation of the deal.  If the deal advisor sent you the deal, you should be grateful they thought enough of you in the first place to send you the deal. So find a way to let the advisor know that you appreciate their effort to include you in the process.
2. Be positive and use the deal as a framework to educate the advisor – We all know there is no perfect deal that ticks all boxes for a lender. Rather than focus on what you do not like about the deal, spend some time to tell the advisor what you and your credit team do like about it. Through providing additional color and insight as to how the deal was perceived internally, the advisor will better understand your preferences and prioritize you for future deals.
3. Make it sound like you feel bad that you are turning it down – People like knowing that you want to do business with them and that conversely, you feel a slight bit of disappointment that you cannot proceed with them on a deal. As a lender, you want to present a can-do spirit of collaboration and optimism to your deal sources. When you turn a deal down for it not meeting your criteria, you are making it all about you and the tyranny of your credit policy.
4. Be Constructive to the Advisor – the best lenders form relationships with good advisors and help them in navigating the lender ecosystem. They may know another lender contact they can refer the advisor to or perhaps have an insight that will help the advisor rethink the approach. Advisors value this input as the more smart lenders they dialogue with on a deal, the greater the chances of eventually finding a home for the loan.