Credit crisis
How to deal with your bank today

As I speak to business owners around the country, one of the casualties from the current economic downturn that I hear a lot about is the relationship that some owners have with their bank.

When business turns down, bankers tend to become more conservative, and that is certainly the case today. In today’s market, however, this situation is compounded, as many bankers are themselves under greater pressure from regulators. The result for many business owners has been higher interest rates, tougher terms, stricter covenants, and in some cases, a move into the workout area or even out of the bank altogether.

Milwaukee-based Corporate Financial Advisors has created a special financing practice that specializes in helping businesses work through their financial issues by assisting them in negotiating with banks, mezzanine debt providers and private equity firms. Joe Foehlich, managing partner with CFA has this to say about the topic,

“In order to deal with the above phenomenon, business owners need a well thought-out plan as well as knowledge of the options available to them in the financial markets. Obviously, the path of least resistance is to be able to negotiate a revised loan agreement with their existing lender providing them with the liquidity and flexibility they need to weather the current economic storm. There are many variables involved in this effort, thus the need for a well thought-out and properly presented plan.”

 "If a suitable financial arrangement cannot be worked out with the existing lender, plans should be made to approach a new lender. Again, a good plan is even more essential in this case, because a new lender will respond far more favorably if the relevant information is presented to them in a form that is easy to understand with answers to their questions. Having a good or bad plan can often be the difference between a yes or no response from a lender.”

"In some cases, a business owner needs to consider bringing in some outside capital to strengthen their business. Although this is generally not the preferred option, it can be a more attractive alternative than risking a showdown with their bank or perhaps even the company’s survival. Raising equity or mezzanine capital is something with which few business owners have extensive experience, so expert advice is extremely important in getting this job done effectively, efficiently, and on the best possible terms. Since non- bank capital is significantly more expensive, the cost of doing this incorrectly can be very high.”

Many business owners hire financing experts like Corporate Financial Advisors when confronting and resolving the issues that arise when having trouble with their banks. It is not always necessary, but often times these experts can pay for their services many times over through the vastly better results they deliver for their clients. And, since most business owners are not financing experts, they are better off spending their time working on improving their businesses rather than trying to pull information together to present to a banker or other lending alternatives. These are challenging times for most businesses, and shoring up their financial picture can position a company for survival today and prosperity when the economy recovers.