Small Business Financing When Credit is Tight

Keeping Your Bank Happy

When serving as CFO for literally 100’s of companies over my career, I have had my share of bank meetings. Whether it is the weakness of the credit market or the lack of adequate business performance, this has recently become an unpleasant chore. Today I met with a lender that is in the process of transferring one of my clients to workout (the department of the bank that extracts unwanted loans from their portfolio). Two years ago the bank would beg to give this client more money. But today is a very different story. The bank wants out. And they are going to make me and my client miserable until they achieve that goal. This includes increased reporting requirements, oppressive interest rates, forbearance fees, appraisals, field audits, etc. These are all costs and distractions that my client would prefer to avoid.

Banks are looking for excuses to get out of loans. This is especially true when the borrower negotiated a great deal. Now that credit is tight and the market is much less competitive, banks can often alter the terms of a loan with little risk of losing a client (after all, where can you go?) Here are some tips to help you avoid these problems and keep your bank happy:

1. Produce timely and accurate financial data: Banks will assume the worst until you prove otherwise. The proof is in timely and accurate financial data.
2. Use additional services: You are going to incur these costs anyway, why not enhance your banking relationship? Whether it is merchant services (credit card processing), financial planning, or deposit relationship, additional services make you more profitable to a bank. This also gives you additional relationships with the bank. You never know when you may need leverage these relationships.
3. Over-communicate: Banks don’t like surprises. In most circumstances, the earlier you notify the bank of extraordinary events the better. Events that may warrant a conversation with your bank include large capital expenditure projects, late payments, acquisition/divestiture activity.
4. Report good numbers: Performing businesses makes everyone happy. From the banking perspective, it validates the business plan and management team.
   

You can’t control the credit market. However, you can control your relationship with your bank. The better the relationship, the more likely the bank will be willing to help you when times are tough.