Problem #1: You Didn’t Pay.
When you call IT because your computer won’t turn on, they always ask, “Is it plugged in?” That’s because sometimes the obvious answer is also the right answer. Ditto here. Check with your accounting team -- are payments going out?
Solution: If your team is off its game, take action: Improve the accounting manager’s performance or make a personnel change. If money has simply run dry, consider a new loan that better matches your debt structure to your capital needs, or find another source of funds. When one of my clients needed a $1.5 million line of credit to fund a planned expansion, we took the package to eight banks before ending up with a $4 million Small Business Administration loan. It pays to shop around.
Problem #2: You Didn’t Comply.
All credit lines come with a handful of documents: the credit agreement, promissory note, guarantee documents and others. What did you agree to? You may have forgotten a promised submission of financial information or failed to maintain certain financial ratios or cash flow amounts.
Solution: Not only should you be calculating and reporting this information on time, but you should be projecting it into the future. I’m talking about a predetermined net-profit-per-time-period, net worth ratios, accounts-receivable aging levels, and other information that banks keep an eagle eye on. That way, you can see problems like this coming.
Problem #3: You Didn’t Communicate.
Most entrepreneurs I know treat their bankers like enemies. They send their required reports, begrudgingly accept the banker’s annual lunch invitation, and otherwise avoid any and all contact. Wrong!
Solution: Put your banker at ease. Scrupulously prepare accurate reports and send them early. Include extra schedules to highlight and explain important numbers. Then call your banker -- emails don’t cut it -- to check in monthly. I also like to meet with my bankers at least quarterly. That way, you’ve primed the relationship for problem solving.
If your credit is cut, ask for a face-to-face meeting to make your case. When there, offer more information on your current financial situation and how you’re improving it. Remember, loan officers aren’t the ultimate decision makers—but they’ll be selling your request to bank management, so be nice. At the very least, you can ask for more time to get your affairs in order, or, if necessary, shop for a new bank (which can take months).