An interest rate is easy to compare. A funding proposal is more complicated. Fees, conditions, repayment timing, security requirements and flexibility can change the practical cost and usefulness of a facility. Before accepting terms, consider how the funding fits the transaction and what would happen if the timetable or repayment plan changes. The cheapest headline rate may not produce the most workable arrangement.
Compare the complete cost
Ask for a clear schedule of establishment, ongoing, exit and other applicable fees, together with interest calculations and payment timing. Your financial adviser can help model the expected cash flows. Compare proposals over the same assumed period and borrowing amount. Otherwise, two apparently similar offers may be based on different assumptions about when funds are drawn or repaid.
Also model a delay. If your planned repayment depends on a property sale, refinancing or another transaction, consider what happens if that event takes longer than expected. Ask about extension arrangements and the conditions attached to them. Do not treat an anticipated extension as committed unless the relevant terms and approvals support that assumption.
Understand the path to funding
A proposal is only useful if its conditions can be satisfied. Identify the approvals, valuations, information and other steps still required before funds can be advanced. Ask who is responsible for each item and what timing is realistic. Your lawyer should explain the effect of the funding documents and any commitments made before the facility becomes available.
For a hypothetical acquisition, a funding deadline may be tied to the sale timetable. If valuation or credit approval is still outstanding, the transaction team needs to understand that dependency. Coordinating buyer, lender and advisers early can avoid treating a desired funding date as an assured outcome and making commitments on that mistaken basis.
Examine operational flexibility
Discuss how the facility will work during its term. Will you need further drawings, asset releases, early repayment or changes to the project? What information must be supplied to the lender? Ask advisers to explain restrictions and approval requirements in practical terms. Terms that are manageable for a stable business may create difficulties for a business undergoing change.
Security and guarantees also require focused advice. Understand who is providing them, which assets or obligations are involved and what the consequences could be. A commercial negotiation should recognise those exposures rather than treat them as routine paperwork. The appropriate protections and legal effect depend on the specific arrangement and the advice of the responsible lawyer.
Make the repayment plan credible
Identify the expected source of repayment and the assumptions supporting it. Consider alternatives if the primary plan is delayed. Present accurate information and address weaknesses directly. A negotiation based on a realistic proposal is more useful than one that secures attractive indicative terms but cannot progress through the lender's assessment.
Ardian Law assists with commercial negotiations and coordination between borrowers, lenders and advisers. Call 02 8111 7700 to discuss outstanding funding terms. The firm's role and any required specialist financial or regulatory advice should be agreed for the particular matter.