How To Navigate Lastwednesday
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How to Navigate Your Banking Relationship in Troubled Waters September 30, 2009 Bill McDermott
Transcript of How To Navigate Lastwednesday
How to Navigate Your Banking Relationship in Troubled Waters
September 30, 2009Bill McDermott
Presentation Outline• There’s been a dramatic shift in the
banking industry• How healthy is your bank?• What is your bank/banker looking for from
you?• Do you have a relationship with a bank or
a banker?• What can/will your bank due when your
line of credit matures?
The shift in the banking industry…
• There has been consolidation in the banking industry, one third of the independent banking organizations in the US have been acquired over the past 15 years
• Over 60 banks in Georgia have been started in the past five years. Over 330 banks exist in Georgia today.
How healthy is your bank?
• Banks are measured by their regulatory agency on an annual basis by
• Capital adequacy• Asset Quality• Management• Earnings• Liquidity
Get on the internet…
• Go to www.fdic.gov
• Go to Bankers
• Go to Institution directory
• Type in the name of your bank
You should know…
• While you are evaluating your bank …
• Your bank is evaluating you…
• How is your capital, asset quality, management, earnings and liquidity
Many business owners prefer…
– To interact with their bank only when required and share no more information than is necessary to maintain the borrowing agreement
– This may be a strategic mistake– Update your bank/banker about your
companies latest goings on– Consider learning how to speak your
banker’s language
When you demonstrate this type of proactive communication…
• You invite your banker to reciprocate in this type of proactive communication with you
• Also, try to discreetly find out if your banker is the actual decision maker for your relationship or just an order taker
• What changes have they had in their business or market
• What changes, if any, do they anticipate in your banking relationship
If you choose to wait until your loan matures…
At a maturity, your bank can…
• Change the loan amount
• Increase the rate or fees
• Change the collateral requirement
• Change or add covenant requirements
Your line of credit may have…
• Some type of formula where the bank will loan a certain % of your accounts receivable
• You may have certain covenants that are monitored on a monthly, quarterly or annual basis
• If you are out of compliance with these covenants, that can trigger a default
Review your note and collateral documents…
• Most notes and collateral documents have language that favors the lender
• It is important to understand what your lender can and can’t do with respect to those documents
Knowing when it’s time to get a second opinion…
• When you feel that the relationship has changed
• When you are experiencing a significant delay in response time
• If you feel that your bank is really taking advantage of you
• When you believe that the relationship has become one-sided in favor of the bank
Some closing suggestions…
• This comes from a banker who has worked with private businesses for over 30 years.
Clean up the Balance sheet
• More often than not, there are some significant balances that need adjustment
• AR?• Inventory?
Benchmark your performance
• Compare your results with your industry peers
• Liquidity• Leverage• Profitability• Activity
Create a budget
• Without one you’re flying blind every month
• A budget is critical to managing profitability
Create monthly cash flow projections
• Cash flow projections are the secret to taking control of your business
• Collections• Inventory purchases• Equipment purchases
How do we navigate..
• Understand that there has been a shift in the banking industry
• Understand that while your banking is assessing your health you should be assessing theirs too.
• Be proactive in communicating with your banker and know when it’s time to get a second opinion
• Have your commitment letter and loan documents reviewed by a professional
• Understand what your bank can and cannot due when your loan matures
