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Time is of the essence’ is a contract clause used when an action must occur by a certain time or the deal is in jeopardy, such as the buying and selling real estate. The reality is, when dealing with funding sources, that time is of the essence for the entire transaction.
I have seen deals that seemed rock solid, collapse. The reasons for their demise didn’t come from any unsolvable disagreement or lack of information. Looking back, I see that many of them just simply took too much time.
When an applicant applies to a bank, there is a flurry of activity. Applications are completed, appraisals ordered, interviews conducted. There is a lot of information gathering as the bank prepares the loan package for underwriting. Once the package goes behind the curtain, the wait begins. Occasionally, requests for information will come from underwriting. If underwriting likes the deal, they’ll defend it to a loan committee and the deal is, or is not, approved.
What we’ve noticed is that the slower an applicant is in responding with requested information at any stage of a deal, the longer it takes. The reason for this is bankers are usually working several deals at once. If they receive your information quickly, they stay focused on you. If they don’t, your deal goes in the pile and they work on the next one in line. They will get back to yours when they have your information and the time to focus on it.
If there are repeated delays in the information flow, inertia builds up. People’s attitudes about the deal change. Think about it. If two deals are the same who would you fund, the applicant that responds to you quickly or the one that keeps asking for more time or misses promised deadlines. The banker starts to think they are negotiating with a disorganized or uncommitted prospect.
Another risk is the situation around the deal has more time to change. A client was about to close a $5MM loan after taking six leisurely months of negotiations. Just days before closing the August ’08 banking meltdown occurred. No deal. In 1987, I worked on a team taking a tech company public. Their IPO was scheduled for the day after Black Monday. Obviously, no deal. Nothing changed for these two companies. They were still viable but the deals didn’t happen because the environment around them deteriorated.
Think of your application as an audition. You are showing, in a very real way, your business acumen. We push our clients to be as responsive as possible when dealing with funding sources. It sends the message that we get things done. I had one underwriter tell me, “It’s refreshing to be pushed by an applicant for once.”
If you think the process is more relaxed with private investors, think again. Any dropped ball can be sudden death in that arena. You have to redouble your vigilance when dealing with private funding sources.
By the way, this rule only applies to you. The funding source can take their sweet time. However, note, the time they take to respond is a very real indicator of their interest. If things start to drag, you need to ask tough questions to see if your deal is still alive.
You only have control of your part of any transaction. Perform as if your business life depends on it. It does. You don’t know what will happen in the deal environment or how your action, or inaction, will be perceived. Time is of the essence.
Peter Mehit is COO of Custom Business Planning and Solutions, a business strategy and planning firm specializes in clarifying the options and way forward for businesses in many industries. You may reach him at 800-741-8444 or visit the company’s website at www.custombps.com.
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