As long as you have been with a bank for a couple of years and have given the bank some advance warning regarding a few upcoming late payments, it will probably still want to keep your business. If you can present a good case for your company’s future, with accompanying numbers, the bank may even extend your credit limit to assist you during your cash crunch.
However, if you are going to be missing a lot of payments and can’t predict when you will be able to catch up, the bank will be much more interested in recovering its capital than retaining your patronage. In this case, the bank will not be interested in extending your credit limit, no matter how much you may need the cash.
The Bank Wants to Feel Confident about You and Your Business
On the other hand, if a bank feels it has a reasonable chance of recouping all or a significant portion of its loan at some point in the future, it probably won’t attempt to foreclose on your assets.
Even though a bank may have carefully considered the existence of solid collateral, such as real estate or equipment, in lending you money, very few banks are eager to press a customer into foreclosure to offset loan losses. Banks seldom realize market value when they auction off foreclosed property or equipment. Foreclosure proceedings cost time, money, and community goodwill.
Always keep your bank appraised of any major financial changes in your company, even when they are negative. And, in this case, offer the bank a realistic plan detailing its eventual payment in full.
But try not to “cry wolf” too much, either! In other words, don’t alert the bank in advance if you think you might have a problem; only consider alerting them when it is fairly certain. Don’t give them all the details of your issues and your turnaround plan unless they ask for it.
Generally, if you are going to miss a payment, the bank wants a distant overview picture. They want to hear that you are confident that you think you can turn around the situation. They don’t want to hear all the details.
You may likely be nervous, but calm yourself down and try to sound fairly confident to the bank. They know you have difficult issues if you are going to miss a payment. That’s a given. That’s business and that’s banking. It happens. But they want to hear that you are still confident in your business, still giving it your energy, and still trying to make it happen.
Takeaways You Can Use
- Don’t cry wolf!
- Keep your bank informed, and be honest, but confident.
- Foreclosures are a bad deal for banks, too.