Call the Bank before They Call You!
More and more business owners are finding it impossible to keep up monthly bank loan repayments and to work within agreed bank overdraft limits.
It may appear to be the easy option to ignore the situation and hope that things will get better. But things won't get better any time soon! The best option is to bite the bullet now, take stock of the situation and Call the Bank before They Call You!
Here's what you can do to negotiate the best possible outcome.
1. Make the Call
The all important first step is to call your bank manager as soon as you recognise a potential problem. Explain your concerns and ask for an appointment to discuss possible solutions.
Don’t delay. It is easy to put off making this call until you know more but then it may be too late. If the problem does not turn out to be as bad as you thought, no harm done, in fact it shows that you are actively managing your business.
If you are not satisfied with the response of the bank manager, ask to speak with another manager at the bank, one who understands your business and is willing to help.
2. Prepare Well
It is important to be well prepared for your meeting.
- Take some initial steps to improve your financial position. Eliminate unnecessary costs, take steps to reduce key expenses such as rent and wages and cut back on personal drawings. Free up cash, reduce stock levels, negotiate advance payments from customers and delayed payments to suppliers. Then prepare up-to-date management accounts that show how the financial situation can be improved.
- Prepare a weekly or monthly cash flow projection that clearly shows how much cash is available for loan repayments and that the business can remain within agreed overdraft limits over the coming months.
- Identify specific steps that you will take to maintain or, if possible, increase sales. Prepare a Profit & Loss projection for the next 12 to 24 months that reflects these changes.
- Gather information about the current state of your industry and future trends. The more stable the industry, the better your chance of extending the term of borrowing.
- Consider your personal financial situation. Are you are prepared to invest further personal finance in the business?
- And do take advice from an accountant or professional business advisor familiar with your business and with proven experience in dealing with banks.
3. Consider Your Options
There may be a number of options open to you. The bank may agree to convert an overdraft to a term loan, in full or in part, to extend the term of an existing term loan or to offer invoice discounting or other alternative finance options.
Remember that standard rules of thumb apply:
- The length of time over which you borrow should equate to the period over which you make use of the funds
- The business should be able to make the repayments when they fall due
Consider your options and identify the ones that work best for you.
4. Meet the Bank Manager
Explain what you have done to address the situation. Present your cash flow and profit and loss projections. Let the bank manager explain the bank’s position. Discuss the options. Agree a plan of action that works for you and for the bank.
Finally, remember that the general guidelines for dealing with banks remain the same.
- Your personal credibility remains the key, so don’t make false promises.
- Good cash flow is essential, so you need to demonstrate that you can make repayments when they fall due.
- And security is important, so you need to be in a position to offer security such as a personal asset, equipment, cash savings, an order from a blue chip customer or something else that can be used to repay the loan if repayments are not made!
Source: eamon@mybusiness.ie.