What to Do When the Bank Pulls Your Line of Credit

It almost goes without saying: If you find a lender willing to open a credit line for your business, you can't afford a misstep. Bankers prefer applicants who provide detailed financial information and who can talk easily about their business's financial situation. If you aren't confident explaining a recent sales decline, take along your accountant or lawyer. And prepare:

Put together a clean package of critical information. Include three years of financial statements and tax returns from your company, a personal financial statement and your personal tax filings--and include several copies. Collateral for your line of credit will be your inventory or receivables. If you own an inventory-rich business, include a detailed listing, with information about how often it turns, how you cull bad inventory and how subject it is to obsolescence. Otherwise, include a list of your customers, how you qualify their credit worthiness, their ordering and payment history and how you collect when they don't pay on time. "You want to make the bank confident they can lend money against your receivables," says John Blatz of Brotherhood Bank and Trust in Shawnee, Kan.

Make an appointment with a loan officer with expertise in your industry. Dress appropriately: That means no jeans, and also no Armani suits if you're in a laid-back community.

Give the lender a reason to make the loan. Tell a compelling story and invite the loan committee to visit your company and meet your management team. Ask about underwriting standards, so you won't be blindsided if the institution wants a personal guarantee, for example.

If the officer asks for more information, provide it quickly.

If you are turned down, ask the officer why and, if possible, make those changes. You can then reapply, or move on to another local institution.

Don't take rejection personally. "Lending is a process," says John Hamburger, president of Franchise Times Corp. in Minneapolis. "It just means that your credit line will not work with that lender at that time. Continue your relationship."

This article was originally published in the February 2010 print edition of Entrepreneur with the headline: What to Do When the Bank Pulls Your Line of Credit.