For many entrepreneurs, it's a complete mystery how -- and when -- a banker decides that it's time for a company's credit-line limit to be raised or its interest rate reduced. To shed some light on the process, Inc. interviewed George R. Dovich, executive vice-president and chief lending officer of Second National Bank of Warren, in Warren, Ohio, which lends primarily to small- and midsize companies.

Inc.: Is there a quick rule of thumb -- something like "After one or two years, it's time to improve credit-line conditions for a good customer"?

Dovich: No, although it certainly is true that every year at a bank like ours, loan officers evaluate current business conditions for their clients. They try, on a proactive basis, to make some judgments about whether each company's lending limits and costs are appropriate. They don't wait for customers to come to them with a request for better loan terms -- although customers certainly do approach them as well.

Inc.: Let's put ourselves in the place of a business owner who believes it's time for a credit improvement. How can he or she tell when it just might be the right time to approach a banker?

Dovich: The way a credit line has been handled in the past is very important. If you've built up a good record, you've got a better chance of successfully winning improvements in either the size of the line or your interest rate.

But what constitutes a good record depends on the original goals of the banker and the customer. If this was a credit line that was set up to help a company through a seasonal cash crunch, then we'd take a look at whether the company successfully managed to pay off its borrowings once the slow season was behind it. On the other hand, if the line was set up to help the customer take advantage of major growth opportunities, we'd examine whether that growth had taken place. And we'd want to know if the growth we helped support was profitable.

Inc.: Assuming your customer had handled its credit line pretty well, what else would you consider before sweetening its loan terms?

Dovich: We'd evaluate some key sets of financial results, including revenue and profitability trends, the mix of inventory and accounts receivable, and an up-to-date analysis of receivables aging. Then, if those numbers looked good, we'd want to know how the company planned to make use of the expanded credit line.

Inc.: Can you tell us what you view as warning signs?

Dovich: Some signs are very obvious, like past-due loan payments, credit-line overdrafts, IRS notices, or judgment liens from suppliers. But others are more subtle and might include financial reports that suddenly start looking sloppy or come in late, or a lack of telephone communication from a borrower.