Here's a rule and a caution: Rule: Honesty is the best policy. Caution: Nobody can spot business trouble faster than a banker.
Combine the two, and you have the best reason for being absolutely honest with your banker when it's time to negotiate (or re-negotiate) your business loan or line of credit in tough economic times.
Met any bankers lately who don't know we're deep in a global economic crisis? No, I didn't think so. They also know that the crisis may be taking its toll on your business. In fact, they'll be surprised if you say it isn't - surprised and skeptical.
So if your business is under financial pressure, be honest with your banker about your current status, then outline your own business stimulus package. It might include increasing your line of credit, re-structuring your current debt, or getting a new loan to buy facilities or equipment available at fire-sale prices.
In preparation, update your financials, do your projections, and run your ratios. It will be no surprise to your banker if your revenue is down from the same period last year or if your receivables are taking longer to collect. But if your balance sheet is strong, you're controlling expenses, and can count on cash flow to support your payment schedule, you may have a shot at getting credit at historically low interest rates.
A recent newsletter "Banking Basics for Tough Times" from Business Resource Services (http://www.brs-seattle.com) offers seven excellent tips for business owners. Here are three of the seven.
Stay in touch. Bankers hate surprises. Share both good news and bad on a regular basis.
Be upfront about the state of your industry and know how your company stacks up. If your machine shop makes parts for executive aircraft, you probably haven't seen a lot of orders lately. But if you also make parts for food packaging equipment, you can probably project a steady cash flow.
Know your numbers - how this year compares to last, changes in revenue and expenses, asset values, inventory turns, labor costs. Show your banker you know what's going on so they don't have to waste time introducing you to reality. Work with your CPA or your SBDC counselor to prepare.
Just a note to business owners and managers whose credit lines have been called, or dealer floor plans reduced, or asset based credit requirements increased. Many of these actions are being taken to shore up the shaky balance sheets of banks and other lenders in trouble. GE Capital, Citigroup, and other financial giants have sustained massive losses, but many regional banks have not. Consider well-managed regional banks for your small business credit needs.
Become familiar with SBA's new tax credits and loan guarantee terms. Check on gap financing available through regional development resources like Greater Eastern Oregon Development Corporation. If you work with larger banks, look for those most active in making SBA-guaranteed loans. Talk with revolving loan funds like those available through Federal block grants. Consider special-purpose programs like those of the U.S. Department of Agriculture for rural enterprises.
So whether your banker is one of these or a traditional, bricks-and-mortar Main Street institution that's served your family business for generations, remember the rule and the caution. Communicate honestly and frequently with your banker. Good news and bad, no surprises, solid track record, solid projections. Like your customers, that's what your banker deserves and expects. In return, you can expect to get the credit you need from your financial partner.
Art Hill is VP for economic development and director of Small Business Development Centers at Blue Mountain Community College. He can be reached toll-free at 1-888-441-7232 or by email at firstname.lastname@example.org. Website: www.bluecc.edu/businessindustry. Copyright©2009 Arthur J. Hill. All rights reserved.