Tips on negotiating with lending officers during a credit crunch.
It's one thing to read about other companies hit by the credit crunch; quite another to experience the crunch yourself. But the fact is, companies are being called upon daily by lending officers looking to collect on loans.
We spoke to Jack Corwin of Huntington Holdings, in Los Angeles. A former lending officer with a major insurance company, Corwin has been on the borrower's side of the table for the past five years, negotiating as a hired gun for companies. Here are some of his recommendations for persuading lenders to remain cool:
* Don't deny reality. First, show your banker that you know what the problems are. It's important to do that quickly, says Corwin. If your version isn't convincing, things may unravel fast. "In all likelihood," he notes, "the banker will push to liquidate your assets before things get even worse."
* Design a get-well plan. Show that you know the right medicine to take -- and that you're taking it. In short order, you should have ready a cash-flow plan that lays out how you'll generate the cash to cover your debt service. To lend credibility to the projections, Corwin suggests getting corroborating information from trade journals and other independent sources.
* Narrow the banker's options. Bankers often like to suggest that a simple way out is for you to bring in a new bank or a new investor. Sounds great, but in a tough business climate, it's often fantasy. Why? Because few banks are writing new loans to companies having problems, notes Corwin; and finding investors willing to pay even low prices isn't easy. That leaves the bank two basic options: liquidation or staying with you until your business rebounds. You want the bank to realize that a workout is its only real option. Theorizing about liquidation values and how inventory and accounts-receivable values plunge when a business closes may not score enough points. It's better, says Corwin, to use real examples. With some digging, you should be able to find out what fate befell actual companies in your industry.
* Offer a bone. In exchange for going along with the workout, plan on giving the bank something it doesn't already have. Assuming you've already provided personal guarantees, Corwin suggests agreeing to pay higher interest or to shorten the loan maturity with a balloon payment. "What you need to buy," he says, "is time, because without time, you're out of luck." -- Bruce G. Posner