While there are a number of variations on the old saying, it still rings true: “If you owe your bank manager a thousand dollars, you are at her mercy. If you owe her a million dollars, she is at your mercy.” While there is surely some exaggeration at both ends of that debt spectrum, the fact remains that it isn’t in your lender’s interest to see a business loan go bad. Workouts are usually in everyone’s best interests.
If business conditions have turned somewhat sour, you may be able to weather the storm, if the lender understands that you are making a serious effort to improve those conditions. While the lender is not likely to advance you new funds, it may be perfectly amenable to restructure the loan terms, so that it can move your loan off its list of “troubled assets.” Here are some tips for managing business debt through lean times:
Communicate, Communicate, Communicate
Nothing makes a lender more nervous than silence. Silence allows the loan manager to think only of the worst case scenario. Stay in touch with your lender’s representative. Don’t provide too much detail – it may turn out later not to be true, and you’ll be worse off – but, make sure that the lender’s representative knows that you are working hard on the financial issues.
Aggressively Pursue Your Own Accounts Receivable Collections
By trimming down the average length of time that your own invoices stay unpaid, you can dramatically improve cash flow. Share news of any successes with your lender. The lender’s representative has a boss. If he or she can communicate something good to that boss, it helps you immensely.
Work to Restructure Your Accounts Payable
A lender gets irritated when it is made to feel that it is the only creditor being asked to restructure a debt. In most cases, restructuring your debt with the lender may not lead to ultimate success, if your business remains bogged down in its relationships with other creditors. If you can show that other creditors are making sacrifices, your lender will be much more inclined to “join the crowd.”
Trim Your Own Owner’s Draw or Salary
This one is painful. You’re asking your lender to do with a bit less. Can you follow that same example? Your credibility with your lender’s representative will be significantly increased if he or she realizes that the lender isn’t making all of the sacrifices. Also important, take a look at your lifestyle. Nothing angers a lender more than to talk with a borrower on Friday about how bad business is and then, on Saturday evening, to run into that borrower at the most expensive restaurant in town.
Consult With Experts
While spending valuable funds on experts – particularly business attorneys – can seem counterintuitive, this usually is not the case at all. A troubled businesses tends to “concentrate on the trees, rather than the forest.” A knowledgeable, experienced business attorney can take a dispassionate examination of your situation, and give you sound advice. Don’t view it as an expense; consider it an investment in the future of the business.
The Lender Isn’t Your Enemy
Remember, the lender isn’t your enemy, unless you make it one. It is almost never in the lender’s interest to call your loan. If you give it no choice, of course, that can and will happen.
Blado Kiger Bolan, P.S. – Experienced and Skilled Banking and Lending Lawyers
Blado Kiger Bolan, P.S. has over 50 years of combined experience in advising banks and other lenders in Washington State. We strive to find simple solutions to complex issues, and we are prepared to give you the best representation possible. We have helped many lenders salvage a relationship with a troubled customer through restructuring loans and drafting appropriate workout agreements. Before it was trendy, we worked collaboratively, both with clients, and also with other attorneys in the firm. That way, our clients can benefit from the many strengths that our attorneys can bring to bear on an issue. For assistance with any type of business or workout issue, contact us on the web, or call our Tacoma office at 253-272-2997.