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8 Steps To Keeping Your Bank Happy

Author: Larry Chester, President

“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 about it. It’s true – and why shouldn’t it be? Banks 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 banks to worry about someone else? How do you show them that they don’t need to worry about YOU? Here are eight steps to keeping your bank happy.

Assess Your Relationship With Your Bank

The more honest you are with yourself about your banking relationship, the more successful your outcome will be.

Consider:

  • Your Line of Credit: 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 line of credit (LOC), that may be 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 your bank can tighten credit.

Determine When Your Loan Renews

The closer you are to your renewal, the more scrutiny you’re likely to receive. We also recommend you review your bank covenants. Have you needed waivers because you haven’t met them?

Getting Information to Your Bank

Your bank looks not only at the numbers but also at timeliness to determine how well you manage your business. Remember, your bank’s field audit gives them independent information. Are there surprises waiting?

Next is to put together a plan. Below are some tangible steps you can take.

Determine Your Need

Think: How has your business changed? Have your customers been impacted?  Your sales? Collections? Should you make a change in the products and/or services that you’re providing to the market? What about delivering those services/products? These are all questions to carefully consider.

Next, look at the current financial impact on your business. Update your cash flow forecast so you know how much more money you are 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? Your bank is going to consider your commitment to the business, not just theirs.

How Long Will You Need Additional Help?

Your bank is going to want to know not only how much money you’ll need but also how long you’re going to need it. How are you going to repay the additional money that you’ve borrowed?

What is Your Long-Term Plan?

In other words, how is your business going to change so that you can protect yourself against this type of thing happening again?

Of course, it’s impossible to think about every possible thing that could happen to your company. What your bank wants to know, however, 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 that you’re ready to react to changes in customers/economy, etc.

What is Your Story?

Be prepared to tell your bank about the plans you’ve put together.

Banks loan money to business owners that they trust; not balance sheets they can read. Any bank wants to know that you have a plan of action, that you have a management team that can run the business, a desire to grow, build value and provide service, and 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.

Be Proactive

Consider:

  • Calling your bank to set up a meeting to tell them what you’re doing
  • Making them feel comfortable that you are on top of the issues that you are facing
  • Letting 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.

Infographic on Eight Steps to Keeping Your Bank Happy

A Final Word on Banking Relationships

At CFO Simplified, we believe that there’s only one thing that a bank hates more than bad news: 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, they will likely feel more comfortable that you are ready to act. Then, they can turn their attention to other companies that aren’t—mission accomplished.

Read on to learn more about how to choose the right banking relationship.

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