Why Your Banking Relationship May Be Vulnerable
As many business owners now realize after the past year, your banking relationship can be very vulnerable. Just being successful on your own is not enough. You could hit your numbers, make timely payments, meet all your covenants and still get the "Dear John" phone call from your banker. Here are some of the many reasons why you could be vulnerable:
- You could be breaking a covenant
- You could outgrow your bank
- Your loan is up for renewal
- Your asset values are deteriorating
- An investor of yours needs to cash out
- Your bank may be suffering
- The bank cost of funds has risen
- Your industry may not be out of favor
- Your banker has left
- The bank has put the brakes or pulled back on new loans
- The bank has decided they want more cushion on all their revolvers
- Credit approval at the bank has been moved to a higher level or to corporate
- The bank is on the block to be sold
- The bank has been sold
- The bank is cutting back on services
- Your loan was syndicated and the syndicate is breaking down
What strikes you about the list?
- Most of the factors depend on the bank, not you
- Good performance can also make you vulnerable
- Even if the bank still loves you, you can be vulnerable to rate increases
What if your loan was called and you could not refinance it at another bank? Many companies would be out of business.
What if your cost of borrowing jumped 25 or even 50%? Could you still make money?
Watch your performance carefully. Look at it from the eyes of your banker. Watch your bank's performance too. Develop relationships with several bankers. Dig your well before it dries up.
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