Lessons We Can Learn as Asset-Based Lenders
June 30, 2020
Lessons We Can Learn as Asset-Based Lenders
To highlight our principals in asset-based lending, we at Blacksail Capital Partners often think about and try to emulate organizations that are a true representation of discipline. One such organization that we think about when it comes to true discipline is a group outside of the lending business, which helps us create best practices in our business.
There is probably no tougher military training than what the Navy SEALs endure. On this, we can agree. As unusual as it sounds to develop our own lending structure based on guiding principals of a military organization, we feel that there is much to learn from comparing the guiding principles of the most elite military training program to asset-based lending.
The Navy SEALs have guiding principles*:
- Develop Mental Toughness
- Set and Achieve Micro Goals
- Visualize Success and Overcome Failure
- Convince Yourself You Can Do it
- Be Aware
- Practice Humility
- Find Three Mentors
- Do Small Things Right
- Be Smart About Assessing Others
- Suck it Up
- Sometimes Go Head First
- Take on the Sharks
- Identify the Moment That Matters
- Persevere; Don’t Ring the Bell
Let us explore how these guiding principles of the elite Navy SEALs can apply to the relatively mundane thought process of asset-based lending. When you think about it, what is the basis for an asset-based loan? A borrower has $1 worth of receivables, we lend $0.85; they have a $1 of inventory, we lend $0.60. They have the equipment, we appraise it and lend 75% of the liquidation value. They have real estate, we lend half of what the market value is. So, where do any of these concerns rise to the level of a SEALs mental fortitude? Let us put ourselves into their mindset. Or at least let us indulge ourselves into thinking we can in any way compare!
- Develop Mental Toughness – Well, it certainly is different than what the SEALs need to endure, but when dealing with any asset-based prospect, it can be mind-numbing, frustrating, downright demeaning and otherwise feel like an elephant dart to the head.
- Set and Achieve Micro Goals – It may mean get a term sheet out; get the term sheet signed; get a field exam started; understand the field exam results; get the deal into underwriting; get it approved; get a commitment letter out; get a commitment fee, document and close the deal. Each of these steps is itself a micro goal.
- Visualize Success and Overcome Failure – As the SEALs say under pressure, “work the problem.” If the term sheet doesn’t fit the needs, work the problem; if the field exam doesn’t produce ideal results, work the problem; if underwriting cannot get through the issues, work the problem; if documenting the transaction has complications, work the problem… and so on.
- Convince Yourself You Can Do It – Almost by definition, any asset-based loan can be turned down for countless reasons. Easy to say no and avoid the risk, so convincing oneself there is something there to work with is key to success.
- Be Aware – Even though you have a signed term sheet and are in due diligence, be aware there are always alternatives the prospect can take, which leads to…
- Practice Humility – You may think you have this locked up, but there is another lender out there willing to do this at lower rates, higher advances and otherwise more favorable terms.
- Find Three Mentors – At any level of one’s career, it is inevitable that someone along your path has said something, acted in a certain way, or brought a new perspective to your current situation; think of them and guess how they would handle this
- Do Small Things Right – Make sure your prospect is treated fairly and professionally from start to finish. It is easy to let a bad situation dictate a bad outcome.
- Be Smart About Assessing Others – no one works alone; there is a team of support people, professionals, colleagues and outside influencers. Make them part of the solution and not part of the problem.
- Suck it Up – Sometimes, more often than anyone cares to admit, one has to bite their tongue, dig deep and resist the urge to say something or anything that will only serve to inflame what may be an already intense situation. In the words of Chip Diller (Kevin Bacon) in Animal House, “remain calm, all is well.”
- Sometimes Go Head First – Slightly different take on this as an asset-based lender than a SEAL, but sometimes you have to place your bet, take a chance and go on gut instinct. Simple as that.
- Take on the Sharks – People may question your decisions, but stick to your position if it is well thought out, based on experience and not influenced by any personal or professional agenda.
- Identify the Moment That Matters – As Kenny Roger’s so aptly said, “Know when to fold them…” At some point, you have to give in and give up, and knowing when pressing a bad hand is a dumb move can save everyone from second guessing and questioning what you were thinking.
- Persevere; Don’t Ring the Bell – “All you have to do to quit–is ring the bell. Ring the bell, and you no longer have to wake up at 5 o’clock. Ring the bell, and you no longer have to do the freezing cold swims. Ring the bell, and you no longer have to do the runs, the obstacle course, the PT–and you no longer have to endure the hardships of training. Just ring the bell.”* But by ringing the bell, you haven’t completed the objective. In SEAL speak, you do not become a US Navy SEAL; in asset-based lending, you do not get to close the deal.
This comparison is in no way intended to minimize or trivialize their commitment. It is merely an attempt to apply these quantum level principles to executing on our practices of lending money to businesses in need of alternative funding.
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