Working With Banks

Working With Banks

What Works...and What Doesn't

Banks Make Or Break Your Business. Handle Them Right...

Ever wonder what makes a bank tick? If you have ever owed money, you have some idea. Ever worried about getting paid back? Ever had sleepless nights stewing about how your debtor has been avoiding your calls? Ever been furious about the fancy watch your debtor was wearing, bought probably with your money? Well, if you need a bank's money or patience, keep in mind these simple rules...

Keep In Touch!

This is the number one rule for making your bank happy. If you owe money on a commercial loan and are in any kind of trouble, be in touch early, long before you get desperate. If you are in default, you need to be proactive in getting together with your bank to let them know exactly what is going on and what you plan do do about it. Avoiding their call will get you defaulted faster than you can call a business lawyer. We cannot stress enough the value of communicating with your lender. As simple as it sounds, just keeping in touch can preserve your credit instrument and insure that your loan remains solid.

Talk Long Before You Default.

Banks understand modifications. And believe it or not, creditors usually know business very well and understand how minor concessions can turn a bad loan into a good one. They also understand your need to succeed. So if you see tough times coming, it is wise policy to speak with your creditors and update them on your situation long before any trouble hits, especially when you are not yet seeking any relief. If you are talking with them long before any actual default, they will be far more willing to work with you to avoid default altogether.

Design Your Modification So The Bank Ultimately Makes More Money.

When you do talk about modification, find a plan that makes the bank more money than the one you seek to change. For instance, consider swapping a fixed rate for a floating rate in exchange for a longer amortization period. This can lower your payments immediately and yet give the bank some real upside potential later. Never walk in with a plan that ultimately loses the bank money. Find a way for them to make more if they help you.

Plan, Plan Plan.

Banks speak the language of accounting. Spreadsheets showing monthly columns of revenues, expenses, profits and losses, projected far out into the future. For a banker, a number is worth a thousand words and a million pictures. They analyze you and your plans in terms of the pure numbers behind the concept. You must have highly detailed projections. If you don't know what cash flow statements and profit & loss statements are, you are in real trouble, and most banks will not want to have anything to do with you. So get out your calculator and pencil or spreadsheet and plan away. Your spreadsheets should cover five to ten years, and they should contain entries for all kinds of detailed accounts, proving to a banker that you know your business and have planned for virtually everything. If your spreadsheets run for less than two pages, forget it, go back to work and put more detail into it. Plan, plan, plan. And do it with numbers, not words. Use the language of accounting and you will be speaking the bank's language.

Always Make Payments, No Matter What.

If you have ever been owed money, you know that so long as you are receiving regular payments of any size, you will hesitate to sue or foreclose. This is a crucial phenomenon. It means that ten payments of 100 are better than one payment of 1000, even though the financial result is similar. The ten payments represent a degree of certainty and regularity which create a measure of confidence in lenders. This may not work for large banks with regulatory ratios to worry about. But for individual lenders, creditors, and other folks to whom you owe money, this technique can make the difference between gaining time and accommodations, and getting sued. In our experience, when our clients are owed money, it is hard to talk them into suing when they are getting some kind of small regular payments. Use this to your advantage. If you cannot avoid defaulting, always make payments, even if they are small. It can save your business.

Leave the Jewelry At Home

When you owe money, act like you are not wasting it. Do not show your creditor your new car, or talk about your upcoming vacation, or wear your best cuff links or rolex. Each of these things will make your banker seethe with anger and resentment. Even if the rolex was a gift from old Uncle Warbucks. Bankers don't see it that way. They see you wasting money, their money. When dealing with your creditor, everything you wear, do and say should indicate that you are a frugal workaholic who can be trusted to pinch pennies and make reliable payments. So leave the bling at home.

Contact a Denver Business Lawyer at Williams Law, P.C. for legal counsel and litigation representation.