When a company asks its bank for a loan, the answer reflects that bank's capital position, sector limits, existing exposure to the borrower and internal hurdle rates. None of those are about the borrower's credit quality. Two equally good companies can receive very different offers from the same bank in the same month.
A competitive process separates the credit from the lender. Every lender receives the same memo, the same model and the same deadline, and responds on the same term-sheet template. The borrower then sees a range of offers instead of one price.
Where competition moves the terms
- Leverage. Direct lenders and debt funds often lend more against the same EBITDA than a bank, at a higher margin. Seeing both lets the borrower choose.
- Covenants. Maintenance covenants, headroom and equity-cure rights vary widely, and matter more than margin when trading gets difficult.
- Amortisation. A bullet repayment leaves more cash in the business each year than a fully amortising bank loan.
- Flexibility. Accordions, delayed-draw tranches, permitted acquisitions and prepayment terms are all negotiable when lenders compete.
The relationship bank can still take part. Invited into the process, it bids on the same information as everyone else.
General information, not advice on any specific transaction. See Disclosures.