Editors Note: Content contributor and NHADEC member Barbara Raths is a Senior Vice President and Treasury Management Sales Advisor and International Treasury Specialist at Camden National Bank.
Talk to Your Banker During Uncertain Times
By Barbara Raths, SVP, Treasury Management Sales Advisor
The pandemic has given businesses unprecedented challenges and opportunities. No matter what sector of the economy you are in, 2020 has not followed your business plan. Some industries have suddenly found their goods and services in high demand, while others have seen cash flow evaporate. Ideally, you’re routinely checking in with your banker to discuss the ebb and flow of your business, and plans for growth. Hopefully, you’ve continued to have these important conversations during the pandemic.
Sometimes when things are not going well, you may feel apprehensive about calling your banker. You may owe the bank money and worry about being perceived as a credit risk. It may feel uncomfortable if your business is now struggling, and it’s never fun to be the bearer of this news.
Call your banker
It’s healthy and essential to have open conversations with your business partners. One of those partners is your banker, who stays current with local economic conditions, as well as industry specific challenges, and is familiar with your financial statements and cash flow. Although it can feel counterintuitive to eagerly report to your bank that things are not going according to plan, it is essential to communicate anticipated changes as soon as you start to perceive them. Your banker won’t be surprised if you are calling to say that your business has slowed, but will instead be glad you called.
Your banker is a resource
Your banker is connected to other businesses and has insight into sales, supply chain and labor issues. Having worked with other businesses in similar situations, they are familiar with best practices. In addition to having strong relationships with government guarantee agencies, your banker can connect you with industry specific consultants, regional economic development groups, and various professional service firms who might be able to assist.
Your banker understands your full financial picture
Call your banker if you’re considering credit card offers or taking on other debt that may affect your debt covenants or potentially subject you to high interest rates. There are situations where taking advantage of these offers makes sense and a good banker will tell you when they do, but will also flag any unintended effects on your liquidity or ability to adjust your current debt structure.
Initial questions from your banker might include:
- How is the pandemic affecting your business?
- What is your intuition telling you?
- What has surprised you?
- What are you trying to accomplish?
- Do you plan to realign your business model?
- When do you think things may improve?
- Do you believe these changes are temporary or permanent?
Tell your banker what’s going on. What is not going according to plan? How is your cash flow changing? Are their new opportunities for your business?
In order for your banker to fully explore what options might be available to assist your business, you may need to provide the following updates:
- Most recent Profit and Loss statement (P&L)
- Balance sheet
- Backlog and AP/AR aging report
- Re-forecasted budget
It’s also a great idea to check in with your accountant and/or CPA.
Your banker is your advocate
Your bank wants your business to succeed, enabling you to make timely payments on your loans. All businesses go through cycles where they perform above or below forecast. During growth periods, you may discuss with your banker your ability to meet demand based on your current capital structure. During challenging times, you may want to discuss the pressure of tightening cash flows.
When things are uncertain, it’s tempting to take on additional debt. A loan can be a quick fix to cash flow challenges, or help a business pivot operations to take advantage of new opportunities. Given volatile conditions and your changing financial picture, your banker will spend time looking at various scenarios with you. Sometimes more capital is what is needed, but there’s significant risk to expanding leverage during uncertain times, and you’ll want to discuss this risk with your banker.
The earlier in the process that your banker understands your challenges, the more helpful they will be in exploring options. You may need to access Federal, State and local relief programs; however, it can take time to gather required information, apply for these programs and receive a decision on whether you have been approved. Your banker can help guide you through the process, if you involve them early.
Some options may include:
- Federal loan programs such as the Small Business Administration and the USDA
- State and Local business relief programs
- Restructuring debt and or payments
You may be quietly considering whether it makes sense to remain in business, or adjusting to new conditions may have you thinking about whether to sell or cease to operate part of your business. Changes like these are sensitive. It may seem prudent to keep these thoughts close to the vest until you have made some tough decisions and can announce a plan, but it’s important to have a confidential discussion with your banker to explore what this might look like. Talking about this scenario early means that you will have access to more options and resources that will ultimately improve your position.
Ready to start the conversation?
Simply call and say that you want to give an update based on current conditions. Your banker will be glad you called. When selecting a bank for your business, there are other things equally as important as interest rates and fees. Think about selecting a business partner who will talk with you regularly, who will serve as a resource for your business, ask the important questions, advocate for your business and present options in both challenging and growth times.