The credit crisis is not over and while the economy is improving, banks in Texas are under pressure from regulators and their own internal loan review teams to purge their portfolios and stamp out problems immediately. What does that mean to you? 2010 will not be the year for you to not have it together. Exceptions and anything close to excessive risk are not what bankers are looking for this year. Conservative is the watch word.
The last couple of years have been brutal for just about everyone and virtually nobody has escaped the problems caused by the downturn. So if you are facing a renewal or looking for a new credit facility, here are some immediate action items for you to think about.
1. Scrub your historical financials – if you can’t explain your financials thoroughly and have a clear understanding of every line item, you shouldn’t expect your banker to do that work. Remember that if your revenue has gone down, most of the time, “selling your way out…” does not work, you need to show you can proactively control costs and that you are willing to make tough decisions. This goes without saying, but be able to produce accurate timely financial information for your bank.
2. Prepare projections – don’t go crazy with the numbers, but be able to explain exactly where you are going and more importantly, why they should believe you. If you have evidence that can back up your claim, even better.
3. Review and clean up your personal credit – don’t take on any excessive debts that you can’t sustain with a reasonable salary from your business. If you have any problems, proactively explain the problem and provide a solution for not having it happen again. If you don’t pay your personal bills on time, don’t expect to go far in the business credit world.
4. Be proactive – don’t wait for your banker to ask you questions about problems, go to them face to face, explain your business clearly, take responsibility and tell them what you are going to do to solve the issues. Never make excuses or blame others, you are the owner and you are responsible. Remember that values and integrity are just as important as that next big deal you are going to sign.
5. Know your collateral – if there has been a decline in value, face up to the issues, adjust your financials and be conservative about valuations. Bankers have been given some discretion by the regulators to not classify loans if they are paying on time. So don’t try to fool yourself or the bank, get real.
6. Communicate, Communicate, Communicate – if you can, sit down face to face and present your case to the bank in an organized and succinct fashion. Banks are not in the mood for dragging information out of you and most bankers are quite busy and don’t have time to sit down and educate you.