Picture it: two term sheets on the table. Both lenders are telling you they understand your business, want to be your partner, and can get you where you need to go. But one has a rate that beats the other or terms the other can’t meet. When comparing the two on paper, it’s a no-brainer, right?
But before you sign, there’s a question worth sitting with: how do you know what you’re really getting?
What Can Be More Important Than Price and Structure?
Asset-based lending has evolved tremendously over the last two decades, with the market more efficient than ever and borrowers having more options than ever before. In the past, one lender would likely stick out with the best offer. Today, there are few material differences in pricing and structure, leveling the playing field and making a borrower’s decision more complex.
That complexity is exactly why the relationship with your lender matters as much, if not more, than the terms they’re offering. The lowest cost provider and/or the best structure are not always the better option. How your lender reacts when something unexpected comes along, good or bad, is more important than saving 25 bps or getting an extra 5% on inventory. When things get complicated, is your lender ready to listen, think creatively, and react in a way that feels like a true partnership? Those aren’t things you can find out from a term sheet. And in some cases, what looks like the best deal on paper is actually a lender who is overpromising to seal the deal, with no real ability to deliver once the ink dries.
The Call That Came a Month Later
After decades in the industry, we have unfortunately seen this exact situation play out too often. Once, when a private equity firm was weighing its options. Gibraltar Business Capital (GBC) was in the mix along with a few others. One lender’s term sheet was more attractive on paper. To be honest, the terms were the kind that make other lenders wonder how they’re going to pull it off.
Our response wasn’t a warning or counter-pitch. In fact, it was closer to the opposite. “If you trust what the term sheet says, sign it. We’re rooting for you and we hope it delivers. If it doesn’t, we’re a phone call away.”
The prospect signed with the competitor. A month later, they called GBC back. The deal that had looked too good to be true had turned out to be exactly that. The other firm couldn’t deliver on what was agreed upon. The borrower lost valuable time and money, causing strain on the business.
There weren’t any “I told you so” moments or taking advantage of a borrower in a tough spot from us at GBC. Just a team ready to do what we do best and take care of the client. We took on the prospect and became their trusted partner over the next four years.
A Term Sheet is Only Half the Story
That deal certainly looked great on paper. On the surface, there wasn’t a reason not to sign. But a term sheet can’t tell you how a lender thinks, how they’ll take care of you after signing, or how they’ll show up when your situation doesn’t fit the solution.
In many situations, the decision on which lender to partner with comes down to price. We get it. In a market where every lender is promising partnership and flexibility, the numbers are often the clearest thing to compare. Most of the time, that approach works out. But when it doesn’t, the questions that didn’t make it into the conversation at the front end are the ones that end up mattering most. Can this team think creatively when my business takes an unexpected turn? Will they be straight with me when things don’t go as planned? Will they be the ones to help me strategize opportunities when I’m in growth mode? And most important, will they actually follow through with what was promised?
How Do You Know?
Ask for the list. Before you sign anything, tell your lender you want to have an honest, unscripted conversation with the people who know them best: their clients. Not a curated reference, not a prepared talking point. Just real conversations about what it actually is like to be a partner with them. What happens when things get complicated? Do they follow through? Are they honest with you when the answer isn’t what you want to hear?
A lender who has nothing to hide will hand you that list without hesitation. That’s where you find out what a term sheet can’t tell you.
More Than a Lender
At Gibraltar Business Capital, we’ve always believed that capital is only part of what a borrower needs. We also believe there’s enough room for all of us lenders. There’s nothing we’d love more than to be the solutions provider for every person who walks through our door, but we know that’s not realistic. Not every product or service is the right fit for us, and vice versa. We’re okay with that. But what we’re not okay with is losing someone to a bad actor.
So, when you’re considering lenders, make the call and ask for the list. The right partner will welcome and encourage those conversations. And Gibraltar Business Capital will always be one of them.