Keep your Bank at Bay
Having trouble with a bank or financial partner can cause any CFO or CEO to lose sleep. A line of credit or a loan can be the very lifeblood of liquidity to a business. However, a banker’s job is to make prudent loans that generate a good return. When the risk of losing money on a credit outweighs the return, it is generally reflected in failure to meet agreed-to covenant levels. Or, if written as a demand note, causes the bank to demand repayment.
For this reason, it’s always good to be ready for the worst with your bank. If the bank calls a loan or cancels a line of credit, do you have a “Plan B”? Do you know what you would do? Here are some points to consider:
- Keep your current bank well-informed. Bankers hate surprises. For the relatively small spread over the cost of funds they get on commercial loans, they cannot take big risks. If they know how your business is doing and what your plans are for the future, you are in a better position, even if you have a hiccup.
- Know your backups. Are there banks who have been trying to make appointments with you or your CFO for awhile? Take the time to see them! It will be much easier for them to have confidence lending to you if they know you already…especially in a down cycle.
- Watch your cash position. Keep a close eye on your cash reserves and accumulate cash if you can. Postpone capital expenditures and reign in spending where possible. Conversely, if you are flush with cash, a downturn is the best time to pick up assets or companies/competitors at bargain basement prices.
- Keep an eye on the credit markets. Find out if your bank is pressuring corporate borrowers to repay because they may have their own capital issues due to the sub-prime mortgage mess.
- Know where you can go for liquidity. There are distressed lenders, receivables lenders, factors, and government programs that can help companies in a pickle.
- Have a Business Plan ready in case you have to go to market. See the Industry Snapshot for more details.
- Michael Oleksak 2007
