Regain Your Financial Footing

Article by:
Andrew Milia
EO Detroit

It’s true that the global economic crisis affects us all. Be it mortgage debt, lines of credit or other asset-based lending, the resultant credit crisis is paralyzing businesses of all types. The number one problem facing most entrepreneurs is credit. As a real estate development and consulting firm, we work with companies to restructure and negotiate their credit facilities. Here are some tenets we suggest they follow to ensure they regain their financial footing:

Get in Front of the Problem

Many entrepreneurs operate under the premise of “don’t wake a sleeping dog.” The hope is that by not contacting their lender in advance of an expiring credit facility, the loan would automatically be extended. In the past, business owners could merely execute a loan extension a few days in advance of its expiration. Most owners are shocked that their once-friendly, long-term banking relationships have become tenuous and their “automatic” extensions are no longer automatic. It’s not unusual for extension negotiations to become all-out battles, with borrowers ending up on the losing side with lower credit limits, increased fees and higher interest rates. Successful borrowers get in front of the negotiations to proactively manage their banking relationships.

Don’t Be in Denial

Many entrepreneurs hope that business conditions will right themselves in the near future. This thinking leads to accepting short- term financial Band-Aids as treatment for long-term credit problems. Today, the “extend and pretend” method has been adopted by both banker and borrower alike. The strategy is ill advised, because it is based on the hope that the systemic problem will correct itself or that other financing sources will become available in the near future. As opposed to relying on “hope,” we advise clients to implement multi-staged solutions, which contemplate longer-term, business-recovery strategies. While banks have been focusing on short extensions to keep the “credit leash” tight, we have found that tackling all of the “what if” scenarios is critical. Incorporating benchmarks or milestones in loan workouts help borrowers avoid continual negotiations for the same loan.

Have a Plan

Borrowers often wonder why it takes so long to get an existing loan issue worked out when bankers aren’t making new loans and have “nothing else to do.” The truth is that bankers are busier than ever just managing their existing loan portfolios, handling workouts, reporting to their credit officers and complying with more stringent regulatory conditions. We instruct our clients to turn this gridlock into an opportunity. For example, they can proactively design a plan for a loan workout or extension instead of waiting for the lender to be the aggressor. A bad loan is just as big a problem for the bank as it is for the borrower. To the extent that the borrower can create a solution that solves the lender’s problem, the borrower has a better chance of being successful in achieving his or her own goals.

Communication is Key

While you may have hated going through the loan process in years past, credit negotiations are now more contentious than ever. This adversarial atmosphere often leads to less and less communication when greater communication is actually required. Borrowers must be willing to deal with the situation. Avoid the temptation of putting your head in the sand. Not returning a banker’s phone call leads to greater uncertainty and a breakdown in trust. Our firm often acts as the intermediary on behalf of borrowers to negotiate and communicate with lenders. This frees up mind space borrowers can apply to the business at hand, while their intermediary effectively negotiates with the lender in a systematic, professional and unemotional approach.

While today’s business challenges are considerable, implementing sound solutions can help entrepreneurs deal effectively with their credit problems. The market will regain its strength, but until that happens, the above tenets will help companies survive so that they can once again thrive.

Andrew is president of Franklin Property Corporation, a real estate development and consulting firm. The company assists business owners with their banking and lending relationships, including the restructuring of debt. E-mail Andrew at [email protected].

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