First Strike
Does the early bird get the loan?
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.
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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 doughood@rainmakercapital.com.