How Your Company Narrative Can Improve Your Loan Terms

Corporate Narrative for Improving Loan Terms

Mid-Market Lending Insights

Matt Bjonerud

Matthew Bjonerud

Founder & CEO
Cerebro Capital

Obtaining Financing - Why Your Company Narrative Matters

Without an established personal relationship with a trustworthy lender, securing a working capital loan for day-to-day operations can be difficult for any CFO. Many finance executives spend weeks painstakingly creating a loan package for their lender, only to be offered an unfavorable term sheet or rejected altogether. This is frustrating, nerve-wracking, and a waste of time. It feels like a crapshoot to get funding. Many CFOs don’t realize that sometimes the reason the proposal is getting passed over is because it’s missing a key piece: your narrative.

What is a Narrative for a Corporate Loan Request?

“Your narrative is the showpiece of a lender’s credit memo. You want it to be robust, clear and to weave in qualitative details that match the numbers on your financial statements,” says Kevin Gaughan, Director of Lender Relations at Cerebro Capital. “An expertly crafted  narrative provides a glimpse into your company that wouldn’t otherwise be seen during the scoring process and can tip the loan terms in your favor.”

A corporate narrative brings together key strategic elements into a coherent and powerful story. Lenders evaluate loan requests all day. In order to capture their attention and give them confidence in your company, your loan package has to be compelling. Human beings are wired for narrative, so stories are the single best vehicle we have to communicate our ideas to one another. Stories have an almost unparalleled ability to spur action, gain confidence, and change minds. If everything else in a loan application is average, a unique narrative can make your company unforgettable. And if there is anything that may raise a red flag, your narrative is your chance to give context. But to increase the chances of getting a favorable term sheet, you can’t just use any narrative structure – you must understand what kind of story you need to tell.

Highlight Your Strengths as a Mid-Market Business

Harnessing the benefits of storytelling in a loan request is completely dependent on using the right kind of narrative. A start-up, for example, will likely want to center their narrative around the perseverance and dedication of their CEO, who lenders will need to put their faith in. This is not the case for mid-market businesses, who need to showcase past success and a history of reliability, or if there were negative trends, what they did to correct them. Mid-market banks and lenders want information that will help them predict future success and probability of repayment. A successful narrative for a mid-market company is one that reassures lenders that a business is not a risky borrower. Some highlights to consider including in your narrative:

  • History of the company: why and how it was started
  • Longevity: how many years in business, and if you’ve weathered at least one recession
  • Positioning: how you are well-positioned against the competition
  • Challenges: how did you address challenges you encountered 

 By crafting a narrative that highlights the strengths of the company, your loan request is much more likely to be approved.

Tailor Your Request to Match the Type of Lender

Lenders will often try to invest their capital in a specific way to achieve certain goals. Some lenders focus only on specific verticals, like restaurants or retail stores. To be able to make a reasonable funding request that aligns with the lender’s goals, the first step is to make sure you’re engaging with the right lender. Oftentimes, one of the reasons a company’s loan request gets rejected is because the story their business tells does not align with the lender. That’s why carpet bombing a multitude of different lenders with the same package is usually ineffective. For example:

  • Cash flow lenders look for established businesses with strong financials
  • Asset-based lenders want to understand the assets that can be used a collateral: inventory, A/R, equipment

Understanding the lenders and tweaking the company’s story accordingly will increase your probability for closing your loan at favorable terms. A custom narrative changes the game from a crapshoot to a stacked deck.  

Highlight Customer Relationships

But no matter who a CFO is planning on borrowing from, there are some aspects of the story that should stay constant. You always need to talk about the market your company has carved out and the customer base it has captured. Usually, the best way to frame a narrative for a mid-market company is to center the story around the need for the service the business provides. The most successful mid-market narratives include details about solid customer relationships and current deals. Some areas to highlight that will be looked upon favorably by the lender’s credit committee:

  • Long-term binding contracts
  • Relationships with prominent companies
  • No concentration of more than 10% in any one customer

Taking the time to highlight the demand for a company’s service helps prove to lenders that the business is not at risk of having a dropoff of customers. This reliability makes lenders more confident in your ability to repay.

Show Perseverance through Hard Times

Besides just emphasizing the good aspects of a company, a skillful story can help to explain when the results weren’t as good. A smart CFO takes this opportunity to tell a comeback story. When things got hard, how did your company persevere? No matter how the business kept going, whether through cutbacks or new products, make it part of the narrative. Any company able to explain how they survived a hard time in the past will help gain the trust of lenders

Your Narrative is a Game Changer for Loan Approval

The bottom line is that a strong narrative in a financing request changes the game. Taking the time to craft a narrative unique to your business is well worth it; it can justify why you qualify for a larger loan amount and a better rate. A loan request with a strong story has an edge, and will help you to not only stand out, but also to find the best possible term sheet waiting for you in your inbox Monday morning. 

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