A practical look at what actually drives whether a lower middle market deal gets funded.
When a business owner gets a decline from a bank, the natural reaction is to assume the business has a problem. The credit isn’t strong enough. The collateral isn’t right. The cash flow won’t cover the debt service. Sometimes that is true.
Most of the time, it isn’t.
Most declines in the lower middle market have very little to do with the underlying business. They have to do with how the deal was framed, structured, and positioned before the lender ever opened the file.
We see this constantly. A company between five and a hundred million in revenue, real cash flow, a real reason for the capital, gets sent to the wrong lender, in the wrong structure, at the wrong time. The decline comes back. The owner decides the deal isn’t fundable. The advisor moves on. And a deal that was actually closeable just stops moving.
Here is what is actually happening on the lender side, and what makes the difference between a fundable deal and a stalled one.
Lenders are not looking for the best business. They are looking for a fit.
Every lender, bank or non-bank, has a credit box. The box is a set of rules about leverage, debt service coverage, industry, geography, collateral type, deal size, and use of funds. Some of those rules are written down. Many are not. Most of them shift quarterly based on what the lender’s portfolio already looks like, what their committee approved last week, and what their regulators are focused on this cycle.
A great business with strong margins can get declined by a perfectly reasonable lender for the simple reason that the deal does not match what that lender is doing right now. Same business, same numbers, different lender, the deal closes. That is not a fundability problem. That is a fit problem.
The structure has to be built for the deal, not for whoever is in front of you.
A lot of deals get shaped by whichever lender the borrower happens to be talking to first. The bank prefers a certain advance rate, so the structure gets pulled in that direction. The borrower agrees to a personal guarantee they did not actually need. A covenant gets accepted that does not match how the business operates.
By the time the deal reaches a lender that could actually close it cleanly, the structure has already been twisted to fit a lender that was never going to do the deal. Now the right lender has to undo the previous lender’s compromises before they can underwrite.
The cleaner sequence is the opposite. Decide what structure the deal actually needs, then go to the lenders that do that structure, in that size, in that industry, right now.
Wide outreach almost always backfires.
A common reflex is to send the deal to ten or fifteen lenders at once. The thinking is that more shots on goal means better odds of an offer.
In practice, three things happen. The deal lands on desks where it was never going to close. Lenders talk, and the deal starts to feel shopped. By the time the right lender sees it, they are pricing in the optics of a deal that has been around. None of that is fair, but all of it is real.
A targeted process beats a wide one almost every time. Three to seven lenders that actually fit. Not thirty.
Lender appetite shifts faster than borrowers expect.
A bank that closed five deals like this last year may have pulled back this quarter. A private credit fund that had a hold for transitional CRE in January may be full on that exposure now. A regional bank that liked owner-occupied industrial may have a new credit officer who does not.
None of that shows up on a lender’s website. It shows up only by being in market with that lender recently and seeing what they are actually approving versus what they say they do.
If the deal goes to a lender based on last year’s appetite, the decline that comes back is not a comment on the deal. It is a comment on the timing.
What actually makes a deal fundable
A deal becomes fundable when three things line up. The business is real. The structure matches what the deal actually needs. The lender process targets the lenders most likely to close it right now, given how their box has moved.
The first one is on the borrower. The second and third are usually where deals get won or lost. They are also the parts most borrowers do not see, because they are working off a static idea of who lends to what.
That is the work we do at Greenfield. Not finding lenders. Most borrowers can find lenders. Sequencing the right structure, framing the deal correctly, and getting it in front of the few groups whose current appetite actually fits the situation.
When that sequence is right, the decline rate drops sharply. When it is wrong, the deal grinds for months and the owner ends up convinced the business isn’t fundable.
Usually it is.