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In these
challenging times, it pays to be as prepared as possible. Here
are some suggestions from the banker’s side of the desk that
will help increase your chances of success when it comes to
renew or renegotiate your current loan
structure.
Stay in touch with your
banker
Bankers don’t like surprises. Even if you don’t
like the results, share your financial statements with them on
a timely basis. Don’t wait until they come to you. “Make sure
you share all the news with your banker: the good, the bad,
the ugly,” said Bob Stewart, senior vice president for the
Center for Commercial Banking at the American Bankers
Association. You have a partner relationship with your banker.
You wouldn’t keep your other partners in the dark, would
you?
Don’t kid Yourself (or Your Banker)
Your
banker sees a lot of businesses in all industries. She might
bank your competitors and probably reads the national
statistics. Be upfront about the state of your industry and
how your company stacks up. |
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Know
Your Numbers
Know your past trends, current situation,
and put together the most realistic cash flow projection
possible. Show the banker that you know what the real
situation is so he doesn’t have to spend time and energy
bringing you back to reality.
Have a
Plan
Show that you have a plan to deal with the
situation and have a strong handle on cash flow, especially if
you are asking for an increase to your credit line or an
extension on paying it back. If you were a banker, who would
you rather work with – an owner who’s pretending that
everything’s ok when it isn't, or someone who is facing the
situation head on, taking active steps to address it, and has
a plan going forward?
About
Credit Lines
There are two types of credit lines. One
is a contractual line of credit, which the bank is obligated
to maintain. These usually come with an upfront fee. The other
is a guidance line of credit, which the bank is not obligated
to maintain. In a guidance line letter, you’ll see terms like,
“terms that are mutually agreeable to both parties,” and
“subject to review from time to time.” Stewart suggests that
if you received one of these letters a year or so ago, “you
should talk to your banker and ask him point blank if this
money is there for you if you need it
tomorrow.”
Then Have a Plan B
If you’re
not comfortable with your banker’s answer, shop around. We
heard about a jewelry store owner who had banked with the same
institution for over 10 years. His loan officer informed him
that the bank had recently tightened up its lending policies
to retailers, which resulted in an extremely unattractive
renewal offer. He was able to find another bank that was happy
to have him as a new customer and offered much better rates
and terms.
Don’t Go It Alone
Even those who
are good with numbers can benefit from input and advice.
People to ask? Your CPA is a good source, as is the network of
Small Business Development Centers (SBDC). They offer skilled
counseling at no charge to business owners. To find one in
your area, go your favorite search engine and type in “SBDC”
followed by your state name.
Reach out and
communicate with your banker, your vendors, your management
team, and your advisors. Get advice and input, then get a plan
and take action. We all need to be thinking of this recession
as a process and not a single event. In turn, your on-going
response will to be in the form of a continual series of
actions and adjustments to your plan. |
