Learn how to manage your banking relationship
It is within the norm to perform selective customer management relationship techniques. But what about those who may provide a large portion of your working capital — your bank or alternative lenders?
Of course, as a commercial borrower you are expected to know the terms of your loan agreement, financial and non-financial covenants, periodically inform the lender of certain situations and make payments on a timely basis. In fact, you signed legal documents promising that you would. You may have additionally backed this up with collateral or your personal guarantee — or those of others.
When all is well with your business, that’s really the time to prepare for your worst-case scenario. That’s the day your lender shuts down your line of credit, issues a “demand letter” or “calls the loan.”
“Never happen to me”? Guess again — it does. Your business must immediately convert to a survival mode. Sometimes it’s too late to be effective — but before-the-fact survival tactics could save the day, and the business.
You could be in trouble with your lender solely due to a misunderstanding on its part. Or because of recent happenings or covenant violations, trust or confidence in you or the business has been lost. You may have provided unrealistic performance expectations. Collateral deterioration or weakening guarantors are important considerations. A reduction in your loan’s risk rating also may trigger lender action. Mergers of financial institutions frequently precipitate similar problems.
Danger signals may be evident by the increasing frequency of lender questions, repeated loan restructurings, increased interest rates, additional collateral requirements or the inability to access your lending officer:
• Being proactive involves monthly reporting (whether it’s wanted or not) to the lender of your monthly happenings, sales and production achievements, amended financial forecasts and assumptions, and your statement of covenant compliance.
• Send such reporting to the department head first (to show your commitment). It will then be forwarded to your lending officer.
• All reporting to the lender must be on time. Consequence: You are highlighted within loan exception reports, which are observed by lender decision-makers.
• Get a subscription to your industry publication for your loan officer, which will let him or her better understand your business.
• Invite the lender to your industry association chapter meetings.
• Acknowledge personal events — birthdays, anniversaries, lender promotions. Building of personal lender relationships is important. Take advantage of your public relations, tombstones, promotions, new contracts. Copy the lender.
• Hold an annual open house at your business site — for your loan officer and senior lenders (and depending on the situation, potential lenders), suppliers, key customers and associated professionals.
• Quarterly dinners for lender plus CPA, attorney, consultant, etc. Pick a good location to present recent successes and needs.
Already in a deteriorating circumstance? It may not be too late to rehabilitate the relationship, at least until alternative financing is found. There is an entirely different scenario for immediate and strategic financial actions — when funds have actually been cut off. These involve immediate actions, short-term (one week) and long-term (one to six months) activities.
Even here your “Plan B” should have already been formulated.
Ken Easton is a professional consultant, speaker and seminar leader, providing assistance in credit situation planning for borrowers and lenders. Questions can be submitted to him at email@example.com.