No More Mister Nice Guy!!!

Times have changed. Gone are the days were on the second hole of golf with your Banker you casually mention that your company might miss its debt service covenant due to a delay in shipping a big order. "No Problem", your banker says as he crushes a drive down the middle of the fairway. Good laughs, good times.

Now, your Banker would lose the grip of his club sending his new titanium driver 50 yards down the fairway. Not only that, his boss in the next golf cart is already thinking about how this is going to play at credit committee.

How will it play? Well, not good. Whether its high profile real estate projects experiencing slight delays (read today's Wall Street Journal below the fold), or a business whose quarterly tax payment by the owner tripped a covenant, your banker doesn't care.

Loan portfolio problems persist everywhere and they affect you as a borrower - whether you are applying for credit or adjusting your existing credit agreement. Comforting factors such as the length of the banking relationship, being on the Bank's advisory board, donating to the Bank's charity of choice are butkus. You are in trouble.

The word I'm hearing is that Bank's have itchy trigger fingers resulting in pro-bank loan restructuring or even worse good companies or real estate deals being put in work-out. Loan restructuring usually means higher interest rates, higher fees, and tighter covenants - not to mention the legal costs to change the agreement.

Worse, Most if not all Banks are in the retrenchment mode when it comes to financing capital expenditure investments - especially to those companies that have tweaked the credit agreement. Short pay-back periods, production cost reductions, competitive advantage are reasons to invest in capital expenditures, however, those justifications are falling on deaf ears.

One local borrower - who wants to remain anonymous - mentioned in frustration: "We're just not getting any help from our Bank?".

What can you do? Unfortunately, the only way to make a Bank move on your request is to threaten to leave the Bank. Suddenly, everything makes sense to them - short payback periods, cost reductions leading to increased cash flow. Its sad that it takes that kind of threat given your perceived relationship between you and your Bank.

To accomplish this and to make the threat real, you should always keep other Bank loan officers at your beckon call. Also, you should prepare a financing package way in advance. Time is of the essence. Don't worry about crying wolf regarding threatening to leave or bringing another bank down the prim rose path because many bankers are like the caged mouse eating cheese only to be electrocuted. They keep coming back for more. My gut would time to choose the one banker that actually calls your bluff because he or she is truly has good business sense.

Submit your monthly, quarterly, annual financial information on time - meaning under the allotted time in your credit agreement. While seeming insignificant, being one day late submitting your financial statements is a technical default, immediately bringing your Banker to the restructuring table.

These are trying times for borrowers. Your Bank has become very transactional, versus, relationship driven. Meaning that you can throw away the past 15 years of on-time payments. If your having trouble, I would suggest also getting your attorney up to speed on your current issues. Then read the definition of the "Default Rate of Interest" in your credit agreement. Its not unusual to see your rate increase by 4% over night.

Good Luck.