Why did you buy your last automobile? When I ask company owners this question, they mention a specific event which spurred them to act. Lease expiry, significant service problems or an accident often prompted the trade-in.
When I ask what caused them to replace their bank, I get similar reasons.
Expiring Contracts: When your automobile lease expires you have to make a renewal decision. You face the same decision each time your bank’s lending commitment expires. This should trigger a review of your banking relationship.
Think back to your last renewal. Take out your company’s financial statements from that time and contrast them with your latest results. Also, compare the level of bank service charges you were paying then with those on your latest statement.
The current terms and conditions of your credit facility reflect your company’s creditworthiness and account profitability during the last negotiations.
Significant changes since then warrant adjusting today’s terms. If your revenue and profits have fallen significantly, so has the profitability of your account. Don’t expect to renew your credit facility and retain your present terms.
If your loan payments are past due, then tighter terms become a certainty. Therefore, make the repairs and hope you’ll not suffer additional problems before the next maturity date.
In today’s market you don’t have other options.
The latest data compiled by the Federal Deposit Insurance Corp. reveal 2.6 percent of loans at the nation’s 8005 commercial banks are now more than 60 days past due. That’s the highest non-current loan level in the past eight years.
This means banks cannot take on new accounts that are delinquent at other institutions.
Be a Low Mileage Beauty: Hopefully, you’ve adroitly piloted your company through this recent economic downdraft. So you’re exceptionally unique, comparable to a “low mileage beauty.” Your renewal terms should reward your management success.
Select the facets of your credit facility you want to enhance. Consider whether more money, a longer maturity, or looser covenants might be even more beneficial than just a lower interest rate.
If your creditworthiness has improved dramatically, reflect on the value of reducing the level of your personal guarantee or pledged collateral. Stronger borrowers have greater clout when loan portfolios become anemic. However, you may have to shop to find a bank which fully appreciates your success.
Uncover Maintenance Problems: Excessive time and money spent to maintain a vehicle is often the event which prompts an upgrade. Likewise, companies devoting excessive energy to their banking relationships should start to consider alternatives.
Frequently, however, company owners are not sufficiently involved in the daily treasury operations to assess their bank’s service quality. Request this input on a regular basis.
But, the occurrence of operating errors is not a sufficient reason to start shopping. The banking industry’s tiny margins and huge transaction volumes suggest that operating problems will continue to occur.
It’s a growing backlog of unresolved problems that should cause alarm. So should excessive account officer turnover. Enjoying great rapport with your account officer usually enables swifter resolution of problems when they do arise.
Cherish flawless service and an account officer who really knows your business. Don’t be swayed by promises of what the new models might deliver.
Accidents Happen: Despite outstanding repair work, sometimes a car just never seems the same after an accident. That’s how bankers feel about a company after it’s been in the loan workout department, which manages troubled borrowers’ relationships.
Bankers are savvy risk assessors. They realize a few loans will have to be re-structured to be re-paid.
During that first meeting with workout officers, they probably said their primary goal was to return your account to the regular line officers.
I remember some common phrases used to convey this comfort: “Failure is the fertilizer that will actually help your company grow faster once it recovers. Failure is just an event and not a person.”
Struggling through the arduous turnaround of a beleaguered borrower, however, causes the malady know as “lender’s fatigue.”
The symptom is refusal to admit a company’s rebound is real and permanent. The best antidote may be to shop for replacement lenders unencumbered with the history of painful renegotiations.
ACTION STEP: Changing banks is event driven. Loan renewals, service and performance problems should prompt you to ask: “Will my bank take my company where we need to go?” If so, then keep up your relationship maintenance program. If not, think ahead to the next likely event, and start to prepare for the inevitable trade-in.
