In a great continuing series on the Economic Crisis CFOs talked today about Working Through the Economic Challenges with Your Lender. This is part of the AICPA CPA2Biz Webcasts.
The panelists covered:
- Dealing with lenders in a complex economic environment
- Questions facing CFOs managing in the “new economy”
- Negotiating lines of credit
- Debt vs equity
- Asset-based lending -the only avenue left?
- Tricks of the trade
On an interesting twist to the oft-state wisdom for lenders…know your borrower, they suggested some areas to question when talking with a potential lender.
Keep in mind these CFOs are with mid-market size businesses rather than small businesses, but some of their observations may very well apply to what your business borrowers are thinking or should be asking. Be ready with some answers.
What the prospective business borrower might ask?
• Typical loan size?
The CFOs suggest you ask the lender this question first to see if it is a good fit. No point in wasting time.
• What kind of businesses do they focus on?
Does the bank have a specialty that fits?
• Asset Based Lending Department?
The CFOs seem to think that if your financial institution has an ABL department you might be better able to work with them if a credit starts to deteriorate.
• Health of bank?
How is the capital level of the bank? They suggest a prospective borrower Google the troubled bank lists as well as the investor’s section of the bank’s website.
• What is the bank’s decision making process and location?
The CFOs suggest that a bank in which you are dealing with someone who can make the decision on the loan level you are requesting, or can do so in tandem with their boss, is preferable to a committee approach.
• Ask to meet with your lender’s boss
One of the CFOs said he would not proceed until he met the boss. He thinks it is very important to have a relationship with the person who will sign off on the loan.
• Ask for references
• Have a good ‘growth’ (or at least ‘stability’) story
- Perhaps the growth story right now should be focused on capital growth rather than revenue growth.
- Make sure it is a credible story…show your thinking on the projections, not just an x% growth over time. Compare to others in your industry or past performance out of a recession.
- If the recent historical information is not good, be ready to explain it and talk remedies and plans.
• Pitch your story to more than one bank
The CFOs talked about the importance of communications, especially if things are not going well. When they communicate with their bankers, they want to be able to talk about the strategies for dealing with the situation and the remedies they are working on.
They suggest an email response following up any questions from the lender, along with a question back to the lender. It is clear they want to have a mutually beneficial relationship which requires two-way communications.
As my regular blog readers know, I think understanding business helps you be a better business lender. If you’d like to hear more of these presentations focused at mid-size business CFOs go to the website Braving the Economic Crisis.
Here is the list of previous on-demand webcasts:
Plan for the Worst & the Best Might Happen
Obsessing About Your Liquidity
Working With the Board & Audit Committee – Tough Times … Big Challenges
Scouring Your Balance Sheet: Where Cash is King
What are your favorite resources for business education?
What would you be asking your prospective lender if you were considering a business loan?