CIT COMMERCIAL SERVICES EXEC: KNOWING YOUR LENDER IS KEY IN MERGERS, ACQUISITIONS.

NEW YORK-When a midsize to small company is looking to make an acquisition or merge with another company, it's critical to have a detailed business plan and thoroughly consider the financial structure of the deal.

But equally important, said Jon Lucas, senior vice president of CIT Commercial Services, is for the company "to know your lender" inside and out.

Lucas said when commercial lenders evaluate a loan, they consider the "five Cs," which are character, capacity, capital, collateral and conditions. Lucas suggested that borrowers also conduct a similar evaluation of their lenders. His "borrowers' checklist" includes asking if the lender is committed to the industry.

"Economic conditions like consumer spending levels and seasonality of business sales can both cause huge swings in liquidity," Lucas said. "You should have the commitment and support of a lender who understands these facts and will lend to you in good times and in bad times."

Also on Lucas' checklist is ascertaining the stability of the lender's management. "Look at the longevity of your lender's management team," Lucas explained. "Frequent turnover of senior executives may be an indication that the lender's business strategy is subject to change. Look for a lender who has a stable work force and a stable client base."

In addition, Lucas said, seek flexibility. "Commercial finance and factoring companies lend not only on receivables, but also on inventory, and on equipment and intellectual property," Lucas added. "Trade finance products like letters of credit or documentary collections are equally competitive. With so many lenders competing for your business, look for the terms and structure at a cost that works best for your company."

Capacity is also something on Lucas' checklist for borrowers. He said borrowers should consider whether lenders will syndicate portions of the loan, or hold onto it. "When you hit a `bump in the road' like a quarter or two of losses, and you are called into a meeting with your lender because you have violated various covenants, it will be easier for you to renegotiate the loan with one lender rather than a roomful of lenders you may not know or have experience with," he said.