This story appears in the
July 2001 issue of
Entrepreneur.
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Q: We
recently acquired another company, using seller financing and
existing cash to complete the purchase. When we approached our
banker about a working capital line of credit to combine the firms,
he demanded repayment of our loans, citing violations of our loan
covenants. Can he do this? What are our options?
A:
Rule No. 1: Bankers don't like surprises. When you closed your
loans, the banker imposed some restrictive covenants that prevent
you from taking on additional debt or further leveraging your
company without his prior approval. If he refuses to reconsider,
focus on finding another lender. Your new lender may impose some of
the same restrictions, but my guess is you won't make this
mistake again. Make sure you can live with any and all covenants
before you sign on the dotted line, and keep your lender informed
of your decisions about growing your company. It could save you a
lot of time, money and entrepreneurial agony in the future.
Doug Hood is founder and president of Rainmaker Capital Corp.
Send your questions and comments to doughood@rainmakercapital.com.