Often lost in most Lender’s “FINE PRINT” are a bevy of nefarious loan covenants that can severely restrict your organization’s financial well being and future growth.
Commitment Fees: Paying for the privilege of a bank giving you a loan approval??
At West Star Capital it is our “privilege” to provide an approval without a fee.
Big Banks are huge profit centers who are experts at masking your cost of borrowing. When a lending institution gives you what appears to be a “skinny” rate on your equipment loan but charges you a commitment fee (1-2% of the loan upfront), they are in point of fact, increasing your cost of borrowing. The banks are aware that upfront fee income is money “out of your pocket” and into theirs!
It’s pure profit to the bank’s bottom line (It’s what they do).
You would be better served by borrowing less or utilizing,
West Star Capital and our Zero Commitment Fee Initiative.
Limitations on Distributions: You’re an entrepreneur for a reason, right? You are a hard worker; you have a strategic vision and you want to see it come to fruition. The majority of lenders seek to limit your distribution to further secure the security of their loan, like loan documents, UCC filings, Corporate and Personal Guarantees, aren’t sufficient.
At West Star Capital, we don’t want to count your earnings and in affect control your wallet! We have confidence in our borrower’s business acumen and as a result, we do not require limitations on shareholder distributions. Your money earned is your money earned.
If in fact your bank is capping your distributions, you may want to consider paying off that loan(s).
No lender should have that kind of power over your company. A lender, bank or finance company should be your finance arm, not your business partner controlling you and your organization.
Performance Ratios: Throughout the term of your loan, some lenders require Performance Ratios. By way of example: Debt Service Coverage, Debt to EBITDA, Debt-to-worth, Global Cash Flow Coverage, etc. to measure various aspects of your company’s performance throughout the term of your relationship. #BigBrother, right?
Furthermore, failure to adhere to these kinds of requirements will put you in “Technical Default” of your loan facility, even if you’re paying perfectly. Being in default of a loan covenant (s) can really hinder your future borrowing needs as broken covenants have to be disclosed on your financial statements (Audited or Reviewed), or when another lender calls for a reference.
This is not an environment you want to be in with any lending institution.
Tying Up Your Company: What we mean by this is that Banks have a “belt and suspenders” mentality and more often than not will attempt to “tie up your company” and restrict your future growth and expansion as an organization, to protect their outstanding loan(s).
I personally cannot tell you how many borrowers we meet who would like to get a loan for a second or third location, and to their chagrin, they find out they can’t move forward with their business plan as they had intended. This is due to their previous lender placing a restriction on the borrowing entity, inhibiting the company from guarantying any future loans or being part of any other projects. This is a terrible position to be in when you have an active ADA and need to adhere to a preordained expansion plan.
In these instances, the lenders are taking the place of a “parental figure” basically saying you cannot drive your own car without their permission.
West Star Capital does not make these kinds of demands on our borrowing entity or guarantying entities.
You have the freedom to move forward as you would like.