When it comes to growth financing, one of the ways in which we add exceptional value for our clients is to negotiate a better deal with funders. Here I share some of the basics to ensure a stronger negotiating position.

1 - Gaining and Holding Funder Attention

A good corporate finance advisor knows that funders of all types are most interested when they see:

An Attractive Opportunity Presented in the Best Possible Way:

Initially, this could be as simple as a professionally prepared and designed ‘teaser’ highlighting the main attributes of the proposition which also promises more detailed materials and clearly sets out the requirement, the process and the timelines.

Working closely with a professional advisor to create well-presented materials makes an important statement and creates a vital first impression – it shows funders you are serious about your business and its funding.

Information That Adds Up:

A quality advisor will guide a company on how to present financial information in a balanced and accurate way, communicating confidence to funders that what is being proposed will withstand all stages of analysis, due diligence and legal scrutiny and closing.

A Clear and Orderly Process That Enables Lenders to Generate Initial Terms:

This is crucial as funders need to be confident that a process is completely fair before they participate. Too often in brokered or DIY processes, funders know that approaches are also being made to other brokers and lenders. As another funder might be faster, or know the business better, they might run away with the opportunity. So the incentive is to not waste time and offer a deal as quickly as possible which may not comprise the best possible terms – or to disengage from the process completely.

It is also important to remember that funders rarely improve their offers radically from initial indications. Therefore, it is crucial that the process is seen as a level playing field with an appropriate amount of time for lenders to consider the business and the opportunity.

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2 - Converting Lender Interest Into Successful Funding

Once a SME has their initial terms from a lender, a corporate finance advisor can help ensure that they:

Stay the Course:

Initial terms are no guarantee of funding and there are many steps remaining including full analysis, management presentations, Q&As, continuous negotiations, due diligence and legal closing. Good negotiators will know the process inside out and will be able to think 2-3 steps ahead, not to mention knowing the potential pitfalls at every stage.

Maintain Competitive Tension Between Lenders and FOMO (Fear of Missing Out):

This is absolutely key to delivering the best terms so rushing to select the winning funder ‘forsaking all others’ is certainly tempting but usually premature. Of course, there is a fine balance between messing people around and maintaining competitive tension - you really want to promptly ascertain the potential for all the funders in the process to improve their terms before narrowing to a shortlist and/or selecting the preferred funder.

Knowing the Terrain:

You can only properly judge the attractiveness of the initial or improved terms if you have experience of what a specific funder usually does with similar opportunities and what terms a similar opportunity should generate in the market. For this, you need an experienced financial adviser who has an in-depth understanding of the market, the funders, and the various opportunities, something which is absent from DIY or most brokered processes.

It also important to speak the funders’ language. Many funders strongly prefer or explicitly elect to only engage with businesses that are being supported by corporate finance advisors, so their information requirements, processes and ultimate risk tolerance will be fully understood.  

Getting the Psychology Right:

Having a professional adviser scrutinise your business plan, USP and proposition, as well as helping to prepare your materials, ensures funder confidence throughout the process. It also gives a business the confidence that they are ready to handle the entire process, ensuring they remain solid and unwavering throughout.

A professional adviser is also particularly important in psychological terms when it comes to negotiations which can get tricky and emotional. An adviser is able to think 2-3 steps ahead, using their experience to keep cool and act as a ‘circuit breaker’ as needed – all of which stacks the odds massively in the favour of the client. We discuss this very topic in our blog - Don't let emotion get in the way of negotiation.

We work with growing UK SMEs and small-cap PLCs that have funding needs in excess of £3m and regularly approaching £50m. Our clients’ needs will typically be for sophisticated finance products such as cash flow based lending or private equity investments. Our value lies in helping clients access funding that relies on confidence in future trading and cash flows. For a confidential, independent, no obligation discussion on the funding options available click the 'Let's chat' button.