Q: My business line of credit comes up for renewal in less than a year. Everything is going great with my company, so should I approach my banker now about renewing my loan to hedge my bets in case of an unpredictable slump?
A: You are a rare breed! Most of my borrowers had to be dragged into the bank to renew their lines, much less do so early. Your fears are common; the most often-asked question I've received from entrepreneurs has been "Will my line of credit be renewed?" You've worked yourself ragged to make your company profitable, and, with one fell swoop of his pen, your banker can throw you into a financial tailspin. No credit, no business.
Now is the time to ask yourself if your relationship with your lender is anything other than nirvana. If problems exist, fix them.
Take an honest look at your financial history with your lender and the current atmosphere at the bank. If you feel your situation is favorable for renewal, remind your lender that your line matures within the year and make him aware of your intentions. Also, consider whether you'll need an increase in your credit line for future working capital. Don't overlook the fact that industry swings occur rapidly and you may need reserve funds to weather future storms. Just be sure you can justify the need for any increases you ask for.
Your banker will probably want to see financial statements for both the business and the principals, last year's tax returns, and a short summary of what you've done to improve your bottom line since your last credit approval. Encourage your lender to visit your business. This is mutually beneficial: You deal from a position of strength by delivering your loan request on your own turf, and your lender walks away with a tangible image to factor into that loan request. Fiscal planning for an unexpected slump can not only allay your fears, but also boost the confidence your banker has in your abilities.
Doug Hood is co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to firstname.lastname@example.org.