Linda Keith CPA

A business borrower's rant...why aren't banks lending?

Wed, 01 Jul 2009 15:58:51 -0800

This picture is not of my friend Kirstin Carey, but it does portray how irritated she has become. She is not alone. Today she sent me a rant:

"Apparently, if you have good credit, pay your bills on time, have a business in the black, haven't declared bankruptcy, and haven't been foreclosed on... you aren't a good credit risk. What happened to the stimulus money Obama is giving out like candy? WHERE DID IT GO? It's definitely not going to small business owners who want to hire and help stimulate the economy! "

If you are in business lending, you have to be prepared with an answer that does not sound like whining. I talk with commercial lenders frequently, from the front lines to the management team, and I have distilled the news and those conversations into this article.

(As I was writing the previous paragraph and got as far as 'from the front lines' I have to admit that what popped into my head was 'from the front lines to the bread lines'. Where did that come from? Perhaps because yesterday I had conversations with two lenders recently let go. This is NOT over!)

Here is the article. After you read it would you please comment?

What is your take on this?
Are the SBA offerings helping or are they too vague and difficult?
Are things easing up?
If you are a lender, what is your best advice to a business seeking financing right now?
If you are a business owner, what do you think? Tougher (impossible) to get credit? Same as always?
Is anybody worried about the inflation that will surely follow all of these government expenditures, not just on the financial bailout but otherwise? Is that impacting your financial and business decisions?

An economic picture is worth a thousand words

Tue, 30 Jun 2009 12:30:44 -0800

Dr. Bill Conerly is the principal of Conerly Consulting LLC, which helps business leaders make more profitable decisions through a better understanding of the economy. In his June 2009 newsletter, Bill shows some great graphs. When it comes to economics, a picture really is worth a thousand words!

What I like about Bill is that he jots his simple interpretation right next to each one. The first set of graphs is for the Pacific Northwest, where he and I both live. The second set is the U.S.

Here is a sample of just two of his charts. Click to enlarge:
When you enlarge the picture, note the large corporation pessimism has finally caught up to that of small business. Small business is leading the way again. I wonder if we'll lead the way up, too.

His charts cover:

Net new jobs...still losing jobs but at a milder pace.
Consumer confidence...attitudes are slowly mending.
Consumer spending...now level rather than dropping sharply.
Business confidence...still weak.
Capital Goods orders...spending still weak.
Non-residential construction...an uptick, but the gains were in factory and utility plant which were probably planned long ago.
Ted spread (3 month LIBOR minus T-bills)...Risk premiums are falling; very good news.
Stock market...a little rally.

Take a look at all the graphs yourself. I like Bill's plain-English take on things and the charts that show the story. If you want to keep up with Bill and his economic insights, subscribe to his newsletter.

He also works for banks preparing economic forecasts for your area and sharing it with you and your business clients. That could be a good use of your bank's marketing dollars right about now.

The New "Normal" in Bank Financing | Main Street Financing Challenges

Tue, 30 Jun 2009 10:41:23 -0800

Sam Thacker in this blogpost at www.AllBusiness.com hits the nail on the head. There will definitely be a new 'normal', and many of us can't wait to get 'back' to it.

As someone who has always believed that business lenders need to understand business, this comment jumped out:

"Loan officers can no longer just be salespeople. They must have much stronger analytical skills and general business skills so they may properly evaluate a business' ability to repay debt and thrive."

If you are a lending manager, do you agree?
If so, what are you planning to do as soon as the dust settles to strenthen loan officers analytical and general business skills?

If you are a loan officer, do you agree?
Would you feel more comfortable, confident and competent (the new 3 C's of lending) if you knew more about business?

New eCourses for analysis and business/professional skills:
Would it be way too self serving of me to point out that the eCourses I am busy creating are designed for one purpose? They are to increase analytical and business/professional skills so that lenders can say "yes" to good loans.

I thought not! '-) You'll find them at www.LendersOnlineTraining.com.

You can try before you buy because some of them are

Large Banks and Small Banks in an Era of Systemic Risk Regulation

Fri, 19 Jun 2009 10:23:52 -0800

Are you a 'student' of the banking crisis? Trying to keep up with everything you need to know to do your job well while at the same time keeping your eye on the bigger picture?

I am finding that because 'banking' is my field, every business person I meet expects me to be up on the causes, effects and solutions to the banking crisis. So I have been watching for information that will help you do the same.

In an article in the Cherry Creek News, North Carolina Governor Daniel K. Tarullo does a credible job of comparing the causes and impact of the recession for large and small (community) banks. He also put forth some very interesting statistics regarding the competitiveness of community banks versus large banks.

Here is what popped for me:

On average, commercial banks with less than $1 billion in assets reported a modest net profit during the first quarter of 2009, recovering from an average loss position in the fourth quarter of 2008.
This average figure hides the fact that nearly one in five of these banks lost money in the first quarter.
As of March 31, nonperforming assets were twice the level of one year ago, and when measured against total loans and the category of Other Real Estate Owned, stood at an historic peak.
Furthermore, capital ratios, although still strong for these banks as a group, have fallen since early 2008.

Even with all that has happened in the increase of large bank branches and credit unions making business loans, Governor Tarullo asserts that "many community banks have thrived, in large part because their local presence and personal interactions give them an advantage in meeting the financial needs of many households, small businesses, and agricultural firms."

He says that is because their business model is based on an important economic explanation of the role of financial intermediaries--to develop and apply expertise that allows a lender to make better judgments about the creditworthiness of potential borrowers than could be made by a potential lender with less information about the borrowers.

I was surprised that a small, but growing, body of research suggests that the financial services provided by large banks are less-than-perfect substitutes for those provided by community banks. The Governor says that "for most community bankers, the increased presence in their local markets of large, geographically diversified banking organizations appears not to adversely affect profitability.

"This circumstance may be due to the fact that a branch manager at a large depository institution typically does not have the same local connections and relationships as a community bank president."

Community Banks and Credit Unions
In my experience, credit union lenders and community bank lenders are much more alike than different compared to community bank lenders and large bank lenders. So much of what the Governor had to say about community banks directly applies to credit unions as well.

There is much more in the article and for students of the crisis, it is worth the read. Read the entire article here ...

What do you think?

3 Tips to be a Good 'Follower' in the Loan Department

Wed, 17 Jun 2009 10:57:02 -0800

I had a conversation with Philip Van Hooser this week. Phil is a resource to corporations on leadership and customer service, and has spoken to 2,800 audiences in 800 organizations in the United States and abroad. The guy knows leadership. And he is on the Board of Directors of Farmers Bank & Trust Company, a community bank in Princeton, Kentucky that was founded in 1899.

Phil got me thinking about 'Followership'. I have just taken up sea kayaking and Followership was one of the modules in our training.

Here is what I learned. See how this might apply to the circumstances you find yourself in, especially if your loan department is stressed and stretched right now:

Everyone is responsible to the best of their abilities

In preparation for a sea kayaking trip with any potential risk (crossing, rough conditions, challenging weather) every paddler should
Compute the tides and currents for the trip
Check the weather starting four days out and daily up until the morning of the trip
Be sure they have all of their 'essentials' for rescuing themselves and others
We expect the leader to do it, but we have to add our knowledge to theirs.This is an 'all-hands-on-deck' environment and an amazing opportunity for all lenders to learn from the challenges we face.

Stay with the group

While it is true that when you are first in lending you may not have great paddling skills, it is your responsibility to do your best to stay with the group
In rough seas, staying close means you can get or give help much more quickly
Stay in closer communications than usual with your mentor lender

Speak up and ask questions

The leaders cannot be everywhere and see everything
They are counting on you to speak up
"I don't understand this credit."
"These financial statements don't look right to me."
"I do not understand what I am supposed to do."
"I do not know how to assess whether this borrower will be okay if we just extend the line of credit."
"I can't keep up."

We are certainly in rough waters. In fact, the experienced lenders in your bank or credit union and even the Chief Lending Officer has not been here before.

If you are a 'follower', what other tips do you have to be a good follower right now?
If you are a 'leader', what would you suggest?

Tax Return Analysis for Lenders: On Slideshare!

Tue, 16 Jun 2009 14:42:36 -0800

Many lenders have told me that 'Green Legos, 6 Ns and a Map to Tax Return Analysis' is a simple and easy introduction to

understanding how to pull qualifying income from tax returns
keeping your train of thought when you get interrupted
knowing what you are looking for and what you can safely ignore

Now it is on Slideshare! Here is the link to tax return analysis made simple(r). Take a look and then pass this along to other lenders who need help making loans to businesses or to business owners.

Do you have any other favorite and somewhat simple ways to explain tax return and financial statement analysis for lenders?

Loan Covenants Tighten Up...how about yours?

Fri, 05 Jun 2009 14:46:54 -0800

Matt G. Lamoreaux in a Journal of Accountancy Article says 'Loan Covenants Tighten Up'. Here are his suggestions for what a business should take a look at before talking to their lender. He was joined in the conversation by Sam Thacker of consulting firm Business Finance Solutions.

Negotiate and monitor ratios

Know what ratios your bank cares about
Compare yours to RMA or other industry standards
Monitor them closely

Prepare to be audited

[Linda's note: Especially if you want the banker to consider an improving 2009 financial statement with a poor performance on the 2008 tax return.]

Watch out for positive cashflow covenant

Especially if your operating cycle is longer than 90 days

Get ready for new rate structures

Libor instead of Prime?

Be prepared for more stringent guarantees

Some banks are requiring owner guarantees of 5% owners, down from 20% owners

Know what is typical

[Linda's note: It is hard to negotiate when you do not know what other lenders would require.]

Now is a good time to have a good relationship with your lender, if the lender is in good shape.

In what ways are loan covenants tightening up at your lending institution?
How flexible are you if the borrower misses a covenant?

Comptroller of the Currency Issues Examiner Guidance on CRE

Wed, 03 Jun 2009 11:22:05 -0800

In a town hall meeting last month, I asked Ken Parsons, Chairman of the holding company for Venture Bank and Director of the Independent Community Bankers of America if he thought the regulators needed to revise their guidelines for our current conditions in deciding what loans need to be 'rated' and for how long.

While Parsons said he did not have a problem with the way regulators were approaching challenging loans, I am guessing he and other bankers are happy to see the guidance coming out (for bankers and examiners) regarding loan restructures.

Loan workouts can take a variety of forms:

Simple renewal or extension of the loan terms
Extension of additional credit
Formal restructuring of the loan terms with or without concessions
Foreclosure on underlying collateral

Bank management should not be criticized...

Here is the part I think will be helpful. "Bank management should not be criticized for continuing to carry workout loans as long as they have:

A well-conceived and effective workout plan for the borrower;
Effective internal controls to manage the level of such loans;
Properly risk-rated the loan; and,
Properly considered such loans when determining the level of the ALLL."

The guidance includes:

Elements of an effective Workout/Restructure Program

Collateral Valuation
Financial Information
Curtailment/Re-Margin
Loan Tenor and Maximum Amortization
Legal Documentation

Effects of Restructuring on Risk Rating Considerations

Financial Information

Of course this is what I keyed in on. I am going to include this section word-for-word.

"In most restructure loans, increased reliance will be placed on the guarantor for repayment. The bank's analysis of the guarantor's cash flow and liquidity needs to consider both actual and contingent liabilities.

Further, an analysis of the guarantor's global cash flow should consider inflows, as well as both required and discretionary outflows from all activities. This may involved integrating multiple corporate and partnership tax returns, business financial statements, K-1 schedules and individual tax filings.

The analysis needs to specifically focus on "recurring' " cash flow, including projections of anticipated capital gains income when historical data reflects income to be capital-gain dependent. Anything short of a comprehensive global cash flow analysis diminishes confidence in the assessment of guarantor strength.

Global debt service analysis needs to include realistic projections of borrower/guarantor living expenses, including personal mortgage debt payments, real estate property taxes, state and federal income tax payments, other consumer debt payments and normal living expenses."

A tool for Global Cash Flow

We have just issued our updated Global Cash Flow Analysis of Tax Returns Excel-based worksheets. If you need to handle complicated borrowers with multiple returns, this tool helps. Rich Shulmistra, a Commercial Underwriter with RBC Bank said "I used your eWorksheet this week on a real estate developer with about 10 entities and am thrilled with the results!"

What do you think?

Is this guidance sufficient to bring clarity for the bankers and the examiners?
Did it go far enough?
Did it go too far?

Read the full article: Examiner Guidance for Appropriate Restructure and Risk Rating of Problem Real Estate Loans.pdf

15 Tips to Find Cash in the Balance Sheet: A guide for your business borrowers

Fri, 29 May 2009 15:59:59 -0800

If you are a business lender, you may not be able to say 'Yes' to a loan as readily as you would like right now. But you still want to help your business borrowers.

Perhaps it is time to provide them with some resources. It could be an email or, better yet, a letter from you with some tips to share on finding the cash that might be tied up in their balance sheet.

Even better, stop by their business. You better call first, though, and let them know you are bringing them something. A lot of business owners are worried right now if their banker shows up unannounced. Download the PDF

If you don't want to take a chance on 'lender liability' for the advice, say you found it at Linda Keith CPA's website.

To business owners and managers...

Time to find the cash that might be tied up in your balance sheet. In this post, I'll focus on the assets starting with the most liquid first:

Cash

1: 13 week cash forecast

Keep a 13 week cash forecast and update it weekly. This is a terrible time to be surprised by a cash shortfall. The sooner you know it is coming the sooner you can work on plugging the hole.

2: Horde cash

While some businesses have excess cash, more do not. And most do not yet have a clear picture of how long the down-turn will continue, or how slow the recovery will be. When in doubt, build up a cash cushion.

3: Keep it simple

This is not a time for unusual investments. Keep the cash handy.

Accounts Receivable

4: Accelerate receivables

Consider accepting charge cards
Consider encouraging cash sales with discounts
Consider factoring (borrowing on receivables)

5: Collect aggressively

But keep in mind these are your customers and you may want to help them through the recession along with you
Check their credit
Call immediately when the bill is overdue
Consider asking about the quality of the product/service first
Keep on it but consider negotiating with a valued customer who you think will make it through and has troubles of their own

6: Monitor Receivables

(Get help from your accountant if you do not know how to calculate these.)

Accounts receivable aging
Days in receivables

Inventory

7: What isn't selling?

Consider heavy discount to get rid of it
Be sure you are purchasing the right products

8: Monitor Inventory

Days in inventory
Stock outs

9: Fine-tune your orders and reduce delivery time

Order the amount you need in smaller volume (considering any volume discounts you might lose)
Work with suppliers to reduce delivery time

I do this with my printer. He knows about how many manuals I'll need over the course of a year for sales and for the training I do with lenders. If he has idle workers, he can have them do a print run of my manuals. He keeps them until I need them, but generally not too long. I make smaller orders and only pay for what I need. It works for both of us because we communicate.

Equipment

10: Do you need everything you have?

Consider selling unneeded equipment
Be careful if the equipment is collateral for a loan

11: Purchase smart

Carefully consider capital expenditures
Consider operating lease instead of purchase
Consider outsourcing
Consider collaborating with another business to purchase equipment together

Intangibles

12: Do you have funds tied up in intangibles?

Consider licenses, patents or intellectual property that could be sold.

Liabilities

13: Negotiate

Yes, it is tough in this environment but it does not hurt to try.
Consider equity in place of debt for private debt holders.

14: Watch your covenants

Know what you have agreed to
If you are going to miss a covenant, communicate with your banker right away and let him/her know what you plan to do to fix it.

Communicate with everyone

A lot of the resources I see about finding cash in your balance sheet will say to slow down payables and accelerate receivables. But isn't that exactly what your customers and vendors are doing?

I have a better idea. Communicate closely with your vendors and customers. You all want to make it through in good shape. Talk with each other and find ways to make it work for the entire chain.

That is a good idea with your lender, too!

When it is harder to find a good loan to make....

Fri, 29 May 2009 14:43:01 -0800

These are tougher times to make loans. I know, all over town I keep seeing signs in bank windows...'We have money to lend'. What lenders tell me, though, is that even though there may be money to lend at their bank or credit union, they are having to work harder to get loans approved.

Nick Miller, President of Clarity Advantage in his article, Selling in Tough Times...Preparing for Good, focused on communicating with the small and mid-sized business borrower, customer or prospect...clearly and often.

Those of you who have been in my training workshops on Tax Return or Financial Statement Analysis will recognize some of the points I consistently make about using the credit process as a great opportunity to understand the borrower's business better.

Key points (Bullet points are Nick's and numbered points are mine):

Know who you can and want to sell to

Has lending management clarified which businesses are in the new 'sweet spot'?

Do you clearly understand the loan opportunities and restrictions, but also the other products and services to pitch?

Fine tune your value proposition

When other bankers are after your best customers, and for that matter, you are after theirs, what sets you apart?

In this case, the 'you' can be your bank or the 'you' can be you personally.

If you have developed a relationship beyond just saying yes/no to loans, that comes in here.

What are you doing to bring more value to them in terms of brainstorming improved cash position, advising on whether to put off expansion or equipment purchase, etc.

Stick to your disciplines

This is very hard, especially if you are not seeing the results you are used to.

Get clear on the plan and then stick to it. If you are tempted to stray, go through a process to determine if that adjustment makes sense with your overall goals and run it by other lenders in your company to see what they think.

Increase your coverage

It makes sense that if you are getting fewer 'conversions' you need to touch more prospects.

The added benefit of increasing your coverage is that you'll gain more knowledge of the market place and tactics that are working in this environment to bring back as a resource to all of your customers.
This was a great article and this blog post just touches the surface. I especially like the understanding of business operations that he covers on the second page.

Read the full article.

How do Short Sales Work and Why Banks Might Reject Them

Tue, 26 May 2009 08:34:56 -0800

The public thinks if you are in lending, you are up on every facet of lending. It can be embarrassing if you are not.

Many business or consumer lenders are not up on the details of Short Sales, where a mortgage borrower attempts to get the mortgage holder to accept less than the loan amount and forgive the rest.

I was in a restaurant Friday and got in a conversation with the waitress, Margory. When she found out I consult with banks on loan quality she told me her sad story. Within seconds her eyes had teared up. It is clear she is suffering and does not understand why the bank won't accept the short sale she has lined up.

I commiserated and wished her well. Then decided I wanted to know a bit more about short sales.

About.Com: Homebuying/Selling has a good explanation of why a bank might reject a short sale. It also has links to other articles that cover all aspects of the short sale: definitions, tax consequences, impact on credit scores...the works.

Here is the short list of why a bank rejects a short sale:

Offer price is too low
Package is incomplete
The seller does not qualify
The buyer does not qualify
The bank sold the loan

What resource do you use to get info on an aspect of banking or business that you need to know about?

Silly question...besides the site-wide search function on www.LindaKeithCPA.com, of course.

Similar Numbers...Different Stories: Impact on Business lending

Thu, 21 May 2009 08:45:30 -0800

Jeff Thredgold is an interesting and entertaining economist. He writes a newsletter, Tea Leaf, Your Guide to Understanding Today's Economy.

In his recent post on 'Similar Numbers...Different Stories' he brings us up to date with a ray of hope. Read the article here.

Two bullet points I pulled out:

• Companies slashed capital spending at a 38% annual rate during the first quarter, with investment in software and equipment down at a 34% annual rate. Business investment in new buildings was down at a 44% annual rate. Weak business investment pulled GDP down 2.6% from the prior quarter

Does that mean there is less demand for business loans from our healthiest businesses?

• Businesses also slashed the level of inventories of goods by $104 billion during the first quarter, the largest quarterly decline on record. This factor alone subtracted 2.8% from first quarter GDP. The sharp reduction of goods "on the shelves and in the storerooms" suggests that manufacturing output will be ramped up faster than previously thought when overall spending by consumers and businesses strengthens

Does that mean when the confidence picks up, business borrowing will pick up faster than we thought?

What do you think?

Credit tightening ...loosening? Demand down?

Mon, 18 May 2009 08:05:23 -0800

I am not one to dwell in doom-and-gloom land. That said, understanding the overall situation in business banking helps put the situation at your own financial institution into perspective. Besides, your business borrowers expect you to be up on the latest.

So what do I mean by credit tightening loosening? It looks like even though banks are continuing to tighten credit, the % of banks doing so is dropping according to the April Senior Loan Officer Opinion Survey from the Federal Reserve Board.

Overall outlook for loan quality:

In response to the special questions on the outlook for loan quality, a significant majority of banks reported that credit quality for all types of loans is likely to deteriorate over the year if the economy progresses according to consensus forecasts.

Commercial and Industrial Loans

40% of respondents tightened credit their credit standards further over the January report. Strangely, that is an improvement since 65% reported tightened credit standards in January compared to the previous October.

Large majorities of both domestic and foreign banks reported a less favorable or more uncertain economic outlook, a worsening of industry-specific problems, and a reduced tolerance for risk as important reasons for tightening credit standards and terms on C&I loans.

On balance, about 60 percent of domestic banks reported a further weakening of demand for C&I loans from firms of all sizes over the previous three months, a proportion similar to that reported in the January survey.

Your neck of the woods:

Of course, what is happening nationally is not always what is happening locally. Your local and regional economy, the concentration of industries at your company, and your financial institution's capital situation have a lot to do with how lending at your company is going.

Are you finding the ability to get loans through easing a bit, still about the same or continuing to tighten?

Help your borrower understand operating cycle as an alternative to borrowing

Fri, 08 May 2009 13:03:15 -0800

Heck, even if your financial institution has money to lend, you'll be doing your business borrowers a service if you help them see the additional cash they may have tied up in working capital right now.

In a recent article in the Portland Business Journal, two investment bankers, an attorney and a CPA responded to the question:

With the credit crisis continuing to limit bank lending activities, what alternative means should businesses consider for obtaining financing?

Three of the four mentioned an operating cycle focus. Let's look at how changes in the operating cycle can free up cash. Here is a slide from my credit training on financial statement analysis:

Operating Cycle:

Be the business owner/manager for a moment. Imagine that you can 'turn' your cash back into cash four times a year. In other words, it takes 90 days from the time you pay your supplier for your inventory for you to sell the goods and collect the receivable. What if you could do that in 60 days instead? That would be 6 times a year instead of 4 times a year. Assuming everything else remained the same, you might be able to increase gross margin by 50%!

Or, in this environment, it is more likely that you could:

free up cash to help cover for reduced revenues because let's face it, everything else is not remaining the same.
increase your capital cushion.
improve your debt coverage ratio which would make your banker more comfortable.
deal more effectively with the economic uncertainty as you wait to see how soon the recession will be over, and how long it will take to recover.

With less availability of credit, it is no wonder that our four experts suggest looking to this source...the business itself.

Payables:

Let's look at the payment for the inventory first.
Can you wait longer to pay? This could be as simple as not paying early, although I am pretty sure your business borrowers have thought of that one. Perhaps the business borrower can approach suppliers and ask for better terms. And if they are in the habit of paying early to capture a discount, they might reconsider if that is the best choice now.

Talking to the suppliers is a great idea for many reasons. Payment terms is one, just-in-time inventory might be another.

Inventory:

Still in the mindset of the business owner/manager, consider if your inventory mix is right for our current situation. Have you revised what you are buying, or the quantities, for what is selling best right now? Have you considered if some of the sidelines you had wandered into over the last few years are not the core business to attend to right now?

Your customers may never be as understanding as they are now if you only carry red, blue and green and no longer carry chartreuse.

So add to the call list...if talking with your suppliers will help you negotiate payment terms and tighten the delivery timeline, talking with your customers will help you be sure you have what they need when the need it.

Sales:

Some tried and true ways to accelerate sales are ...well....sales! If you have slower moving inventory, would it make sense to offer a discount? What about encouraging cash sales instead of credit. In my analysis training workshop, I love to show how a drop in days in receivables can be solely related to a shift from credit to cash sales.

For those of you who are knowledgeable about financial statement analysis, you may be squinting your eyes as you read that last paragraph. The reason it is true is because the banker does not have 'credit sales' as a numerator and uses 'total sales' instead. And if this paragraph made absolutely no sense to you it is time to study up on financial statement analysis. '-)

CAUTION: Do not encourage a business owner to drastically cut prices to move inventory without serious consideration to the impact on their brand. A short-term solution to the credit crunch could turn into a long-term disaster if the business brand or image is damaged as they come out of the recession.

Receivables:

Once the sale is made, if on credit, we still have to collect. Staying in touch with your customers is vital here again. Offering discounts for early payment may help, although many of your customers are also trying to conserve cash. If a payment is late, be on the phone immediately. Consider asking if they received the product, or how it is working for them. It will have the same impact as asking for their payment but is a much friendlier overture.

How are they doing and how can you tell?

In financial statement analysis, we talk about working capital, operating cycles, Days in Payable, Days in Inventory and Inventory Turnover, Days in Receivables and Receivables Turnover. These are all ways to see how the business is managing the operating cycle and if there is tied up cash or lost profits in a cycle that could be accelerated.

Help your business borrower see these options and you'll not only help them through the recession, but you'll be more likely to keep them as a customer.

Need a brush-up?

Need a brush up on financial statement analysis and operating cycles? It is covered in my self-study resource: 'Financial Statement Analysis: Understanding the Business Scorecard' .

What are you suggesting as an alternative to bank financing?

Bankers avoid brand-destroying moves when restructuring a loan

Tue, 05 May 2009 16:43:13 -0800

In Kimberly Hellstrom's Marketing Watch Blog, Al Reis (who wrote 'the book' on branding) is back with this blogpost.

As you are considering a restructure on a business loan, you may be drawn into brainstorming possible solutions to solve the short-term (we hope) cash shortages. Your loan manager may want to better understand the business strategy for turning things around.

Al Reis reminds us that damaging the brand for short-term gains can backfire when the recession starts to fade. Think Packard vs Cadillac coming of the Depression.

Business owners and managers are walking several tightropes at once.

Bring in cash to keep from laying off (more) employees.
Accommodate customers who need a discount to stay in business.
Meet DCR and other covenants required by the bank.

To be positioned when the market turns, though, the brand still has to be clear in the minds of the customers.

I think some discounting, cost cutting or deals will be tolerated during the downturn better than at other times. But if a business goes down that road, they need to think carefully about how to do it, and how to move back in position quickly.

Read the article, and don't be too quick to encourage sales-boosting activity that will backfire.