Is your bank manager dressed for a funeral?
If you've missed a loan repayment or think there's a chance this could happen in the next few months, there's not a minute to waste. You need to take action urgently to minimise the chances of becoming a preventable victim of the current downturn.
Many business owners and bank managers alike can't recall the last downturn; it was 17 years ago after all. This means there's a general shortage of experience in managing both businesses in distress and their defaulting loans, so it's important to be proactive to avoid falling victim to either parties' inexperience in this area.
When business isn't going smoothly it can be tempting to focus on anything other than looming or overdue loan repayments, but the problem rarely resolves itself and can quickly spiral out of control to devastate your businesses value and future.
Here are some important steps to help ensure this doesn't happen to your business:
Funeral (avoidance) plans
The best time to start discussions with your bank about a loan repayment that can't be met is before it's overdue. This gives the maximum time possible to come up with a workable solution on a way forward. It also demonstrates that you're on top of your business finances, proactive and comfortable being upfront with the bank.
Bare your soul
When meeting with the bank, make sure you've brought vital financial information that will demonstrate you're managing the finances of your business. It will also give all involved an accurate picture of the situation, meaning decisions can be based on the facts rather than leaving the blanks to be filled in with "worst case scenarios" or "gut feel". This information should include interim financials that are not more than three months old, current aged debtor and creditor listing and a cashflow projection for at least the next quarter.
Plan for the afterlife
Rather than relying on your bank manager to suggest a course of action forward, have a credible plan prepared that shows what actions will be taken in your business to get the loans back in order. This can include implementing cost cutting, changing the product mix or more effectively collecting payments owed to your business. The plan should also include details of what loan repayments will realistically be made in the short term and clearly demonstrate how the loan will eventually be repaid in full.
Get assistance
Meeting with your bank manager under these circumstances can be a daunting task, requiring the right balance of sincerity, calm and professionalism. To assist you in this it can be advisable to take along your accountant, business advisor or solicitor to provide credibility to your story and offer calm but suitably assertive input during the discussions. They can add a crucial voice of reason that keeps the spirit of the meeting co-operative, rather than letting it head down an unproductive path of emotive accusations and threats.
Demonstrate commitment
The bank wants comfort that you're committed to your business and to repaying their loan, even if it's over an extended period. Demonstrating this will reduce the likelihood of the bank escalating its actions, such as placing a receiver into your business. Provide them with credible verbal assurances and then meet agreed commitments, making small additional repayments if feasible to illustrate that you're doing everything to get the loans back in order as fast as possible.
Keep them informed
Clear communication is key. Rather than seeing your bank manager as an adversary, you'll benefit from engendering a strong rapport with them during these times. Don't wait for the phone to ring, call them at least every fortnight to let them know how things are progressing towards agreed milestones such as achieving sales, reducing costs or meeting repayments. When speaking to them, be friendly and professional, remembering that they're doing their job - just as you are.
Be reliable
Make sure that any periodic repayments or information such as interim financials are forwarded at agreed times. If these aren't able to be completed on time, a courtesy call to let them know when they'll be sent will avoid unnecessary concern and inaccurate assumptions being made.
Call on a higher power
If you're unhappy with the approach of your bank manager, don't be afraid to ask to see a regional manager for a fairer hearing. If that doesn't work, consider contacting the banking ombudsman who can assist if the amount in dispute is less than $280,000. With the right approach, your bank manager can be a valuable ally to assist your business through this difficult period. It will require you to make a crucial investment of time and focus that will need to be prioritised above many other pressing activities. This short term investment will help ensure your years of hard work spent establishing your business aren't dead and buried when markets return to normal.