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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.
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