mAccounting

Bank Financing: It's What You Don't Do That Could Cost You

June 28, 2011

I had a great discussion with a local bank officer over lunch this week. We were discussing the state of lending and the availability of bank financing for businesses. There have been many articles written about the difficulty surrounding the banking industry over the last three years. It's become very clear that the crisis began in the housing industry and has affected every other industry as a result of the fallout.

A common theme we hear from lenders is that the Feds are constantly scrutinizing their portfolios and forcing the banks to write their credits down to a lower quality level, many times putting large portions of their customers and deals into classified assets or a workout group.

But that's not really new news. The really interesting part of the conversation came with the details of why the banks were forced to write down loans. In some cases, loans have been rated the lowest point before being considered "classified" by the banks but were forced to be downgraded into classified due to a lack of information in the bank's files.

"So you're telling me that owners could have kept their companies out of workout if they had been providing financial data and company updates," I asked. His response was a definite, "Yes." We stress this all the time to our corporate finance clients. When the bank requests information, make sure you provide it to them, make it complete, and provide it on time.

Too often, business owners think their work with the bank is done once they've provide business and/or strategic plans, financial projections, and company historical data to secure the loan. But that's where the work is just getting started. Whether requested or not, CEO's should treat their lender as a partner and provide them with frequent information and updates.

Most CEO's that we talk to haven't shirked this responsibility intentionally. It's just a task that doesn't get attention until it becomes the most pressing thing on the list. The reality is, though, that growing companies are going to need additional funding and will need a strong relationship with their lenders to get the deals done.

Having someone providing part-time CFO or outsourced consulting services to address these needs specifically, could enhance the company's relationship with lenders and investors, improve the chances of getting financing, and speed the company's growth by having resources available when needed. If this is something that you need assistance with, see one of the partners in our Indianapolis consulting firm and we would be happy to work with you to manage this aspect of your business.