Q: We're in our second year of a loan for our camera shop, and we're now having trouble making payments. How should we deal with our bank?
A: Focus on why your cash flow is down from last year. Create a plan to correct the problem; detailed cash-flow projections will buy time. Develop a strong case explaining that immediate repayment will mean losses for the bank.
Fight the urge to hide-it's better to take the initiative and contact the bank. Your best outcome is a loan you can handle. The bank's best outcome is to collect more in the future rather than liquidate your loan right now.
You'll want to meet with your attorney to review your options, including bankruptcy. Don't bring your attorney to initial meetings with the bank-that's an invitation to fight-but never sign anything before your attorney has reviewed it. Get copies of everything. Don't tell the bank you're considering bankruptcy, or they'll see red.
The banker won't help you design your business turnaround. He or she will hold back, respond to your ideas and ask lots of questions. Remember: Nothing makes the bank shut down faster than a loss of confidence in the borrower. Be open and honest; giving inaccurate financial statements is fraud, and it'll cost you protection under bankruptcy laws.
The bank's approach depends on how the loan officer sees the situation. Is the problem your lack of management ability, problems impacting your entire industry or better-than-expected growth? Do you have a good plan, or are you blindly hoping for a lucky development?
The bank could lower the interest rate, extend the time to pay or even lend you more money. In return for loan restructuring, expect to sign an agreement allowing the peaceful enforcement of collateral agreements, should your turnaround fail. Be certain you can keep these promises and live with the results.
George M. Dawson (firstname.lastname@example.org) is a business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Upstart Publishing, $16.95, 800-235-8866). Send him your financing questions at email@example.com.