In search of smarter capital.

• Author: Quindlen, Tom
• Position: QUICK STUDY

When financial markets are flush, as they were early this summer, lenders often compete based on price or by offering "covenant-lite" or even restriction-free loans. Capital becomes a commodity, and lenders increasingly accept more than reasonable risk to secure business.

That can change, of course, as it did later in the summer, during the credit market crunch. And, in the long term, a lender does its corporate customers no favors by compromising its credit principles. Ultimately, lenders and borrowers who remain disciplined will be better prepared for the next downturn. Smart business leaders look beyond today's interest rates for a lender that can serve a company's broader interests.

How do borrowers find a lender who will value them both in good times and when the market shifts? Here are five key attributes that CFOs and financial intermediaries may want to consider when seeking smarter capital.

Borrowers can afford to be choosy in today's liquid capital markets. Savvy business leaders should look beyond the capital cost and search for smart capital--a lender with depth and breadth of products and services who can serve them for the long haul.

1. Patient Capital When the economy is riding high, many companies have easy access to capital. But when the economy inevitably turns and the capital markets retrench, a solid relationship with a lender is invaluable. Seek an established lender that can accommodate your future needs.

   Does the lender offer various loan structures--cash flow, asset-based and structured--to accommodate changing circumstances? If your cash flow turns negative, will the capital provider show you the door or alternatives? A financier with a big balance sheet that can support a company's peaks and troughs is typically more patient as markets ebb and flow.

2. Industry Acumen There are distinct advantages to finding a lender who specializes in your industry. The learning curve is shorter, the loan structures more tailored and the industry expertise often adds value and greatly facilitates the loan process. Specialists who have finance and operational experience are arguably most effective since they have been on the "other side," running companies.

   Look for financial institutions with genuine experts in your field. Their understanding of the industry, and the collateral clients may use to secure the loan can often lead to greater liquidity and flexibility. They also often become advocates for a client.

3. Customer Focus Many...