Managing Multiple Financial Partners

I'm Jason, and welcome back to INTRO to Finance. This week we’re going to answer the following question:

“How do I work with more than one financier?”

As we’ve discussed in a previous post, there are no one-size-fits-all financing products. Ideally it would be best to use different capital types to fuel various parts of your business. 

However, it’s rare to find a financier that offers all the financial products you might want to access as a growing company. Still, before you start working on adding your second financing partner, you need to make sure your company is ready to add more.

Cost Expectations

Many non-dilutive capital providers have a long history of working well with others and prefer to have others involved. Still, it’s best to review your existing or proposed financial agreements before taking on another financing product.

Some contracts restrict you from taking capital from someone else. The restriction protects against adding a dangerous amount of debt or an unknown partner who may not benefit the company. 

If there are restrictions, you should discuss your desire to add more capital with your current financier. Most capital providers are willing to change the agreement to allow for new money if it benefits all parties involved. They may even have some suggestions or referrals.

Seek Complementary Partners

To create a healthy mix of financial partners, you should have the capital providers financing different parts of your business. Financiers are all looking to be repaid. They rely on specific assets to give them the confidence of repayment. 

When adding additional parties, an existing financier won’t be comfortable with another capital provider who relies on the same assets for repayment. For example, if you’re already working with an inventory lender, it would be difficult to add another financier who wants to take possession of the inventory if something terrible happens.

Instead, you should add complementary partners to your business. Each partner should be relying on different assets of your business for repayment (If you missed our webinar exploring the fundable assets in your business, you can watch it here). Keeping things separate is likely the only way to get all your partners comfortable working with each other.

Making It Official

To finalize the partnerships, you may have additional documentation. One of your partners may require having more rights than the others involved. The financier with more rights is considered the "senior lender."

Assuming everyone is comfortable with this arrangement, the senior lender may require other financiers to formally acknowledge and agree to their position by signing a document called a ‘subordination agreement’. Most of these agreements look similar and won't surprise most lenders because of how common they are.

What If My Partners Disagree?

If your capital provider isn't open to the idea of other partners involved, try to understand if there’s something they see that you don't. They may be acting in the best interest of the company. 

However, suppose you disagree with their assessment of the situation. In that case, you can either discuss how they may meet your financing ask with additional funds, or seek a replacement who’s better aligned with your strategy to have multiple financing products.

This won’t be an incredibly challenging discussion to have with capital providers in most circumstances. It’s prevalent for companies to use different financial products. There are some considerations, but it can be well worth the effort to supply various parts of your business with a dedicated financing vehicle to scale.

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