Whether you are digging out of a mountain of debt or just overcoming a molehill, I have suggested in previous posts these five steps:
STEP ONE: Know your debt situation
STEP TWO: Be cautious as revenue improves
STEP THREE: Don’t (necessarily) pay down debt early
STEP FOUR: Call your lender first if you’ll miss a payment or a covenant
STEP FIVE: Invite your lender over
Even if you are delighted with your lender and the bank or credit union they work for, it’s time to court other lenders. Develop relationships with lenders from other financial institutions in case you need them.
Does that seem unloyal? This is not about loyalty (even if your lender implies it is). I have talked to more lenders who are frustrated at their inability to make loans that make sense. Here are some reasons why loyal lenders may not be able to lend to you.
- Is their bank undercapitalized and lending cut back?
- Did you make every payment as agreed but miss some loan covenants?
- Did a loan you guaranteed for one of your kids get behind and impact your personal credit score?
- Is the bank or credit union cutting back across the board on the type of loan you need?
Any and all of these have happened, even in established lending relationships. This is why you need to protect yourself by creating relationships with multiple lenders and financial institutions.
How to find lenders you might want to consider?
- Ask other business owners, particularly in your industry.
- Ask at business groups like Rotary, Chamber of Commerce and your professional/trade association.
- Ask your business advisors like your CPA and attorney.
And here is what to ask:
- Typical loan size? Ask the lender this question first to see if it is a good fit. No point in wasting time.
- What kind of businesses do they focus on? Does the bank have a specialty that fits your business?
- Asset Based Lending Department? If your financial institution has an ABL department you might be better able to work with them if a credit starts to deteriorate.
- Health of bank or credit union? How is the capital level of the bank? Search on the Internet for the troubled bank lists as well as the investor’s section of the bank’s Web site.
- What is the bank’s decision-making process and location? Look for a bank that will connect you with someone who can make the decision on the loan level you are requesting, or can do so in tandem with their boss. This might be preferable to a committee approach.
- Ask to meet with your lender’s boss. Do not proceed until you meet the boss. It is very important to have a relationship with the person who will sign off on the loan. Plus you now have a relationship with two people, not just one, in case one leaves.
- Ask for references.
The borrower-lender relationships is mutually beneficial when things are going well. But like any other relationship, situations can change. Have other lenders in the wings waiting to take care of your business in case your primary borrower-lender relationship falters.