We’ve closed several commitments for lines of credit, term loans and mortgage loans for equipment and real estate. When reviewing your term sheets or commitment letters, after you go through the borrower, loan amount, rate and fees, collateral and guarantor section, you’ll end up at a section called covenants.
Bankerese is a language understood by bankers, but is a foreign language to most business owners. Communication is happening, but the business owner doesn't understand what's being said or the implications it has for his or her business. Often, we step in and interpret. Here are three of the most important ones to know:
Businesses that took out debt a year ago or even 3 years ago may find themselves in a situation where the cash flow used for the loan or the purpose of the loan has changed. Many businesses find themselves in a situation where a refinance makes sense because they either want to reduce their loan payments to use cash flow for growth or they may want to increase the loan amount because their business is expanding. Businesses are dynamic, but a loan repayment is usually static due to the fixed term of the loan. A floating rate loan is the exception.