“They don’t care about my business, they just want their money” is a common refrain when business owners talk about their banks. Admit it. You’ve at least thought it. It’s true – and why shouldn’t it be? They are concerned about their business, the same way you are concerned about yours.
We’re currently in a very difficult economic time. Every bank is looking at their loan portfolios, to determine which businesses are at risk, and what their losses might be. So how do you get them to worry about someone else? How do you show them that they don’t need to worry about you?
Here are eight steps that will make that job easier:
Assess your relationship with the bank.
- The more honest you are with yourself, the more successful your outreach will be.
- Your Credit Line – How much of your credit line are you using? You should only be using 50% of your line on a regular basis. If you’re using 90% of your LOC, that’s a warning sign.
- Your Borrowing Base- Look at the advance rates on your credit line. If it’s more than 80% on AR and 50% on inventory, it’s aggressive. Changing advance rates is one way the bank can tighten credit.
Determine when your loan renews.
- The closer you are to your renewal, the more scrutiny you’re going to receive.
- Review your bank covenants. Have you needed waivers because you haven’t met them?
Getting information to the bank.
- The bank looks not only at the numbers, but their timeliness to determine how well you manage your business.
- The bank’s field audit gives them independent information. Are there surprises waiting?
Now put together a plan:
Determine your need.
- How has your business changed? Have your customers been impacted? Your sales? Collections? Should you make a change in the products or services that you’re providing to the market? What about delivering those services/products?
- Look at the current financial impact on your business. Update your cash flow forecast so you know how much more money you’re going to need over the next six months.
- If you need more money or have to defer payments, think about other options to get cash to keep your business running. How much money are you able to put back into the business while you turn the corner, because the bank is going to consider your commitment to the business, not just theirs.
How long will you need extra help?
- The bank is going to want to know not just how much money you’ll need, but how long you’re going to need it.
- How are you going to repay the additional money that you’ve borrowed?
How is your business going to change so that you can protect yourself against this type of thing happening again?
- It’s impossible to think about every possible thing that could happen to your company. What the bank wants to know is that. . . .
- You’re monitoring the business climate for changes.
- You’re changing the way you’re spending so that you have more cash for business operations.
- You’re continually analyzing how your business is running.
- Your business plan should have alternative approaches, so you’re ready to react to changes in customers/economy, etc.
What’s your story?
- Be prepared to tell the bank about the plans you’ve put together. Banks loan money to business owners that they trust, not balance sheets they can read. They want to know that you have a plan of action, that you have a management team that can run the business, that you have a desire to grow, build value, provide service, that you have a mission that is near and dear to your heart. That’s what gives them the confidence to keep working with you.
- Call them to set up a meeting to tell them what you’re doing.
- Make them feel comfortable that you are on top of the issues that you are facing.
- Let them know that you will keep them apprised of any changes in your company’s condition.The fact that you’re reaching out is proof that you’ll keep them informed.
There’s only one thing that a bank hates more than bad news – it’s surprises.
During a time of economic uncertainty, banks have reason to be concerned about every business in their portfolio. Show them that you have a plan for the problems that you’re facing. If you do that, they will feel more comfortable that you are ready to act. Then they can turn their attention to other companies who aren’t. Mission Accomplished. Contact CFO Simplified today to learn more about how we can help.