As your business seeks to expand, chances are you will need bank financing to do so. The challenge is to approach your bank with eyes wide open. Here's how.
1. Perform Your Own Stress Test Read the fine print on your loan covenants, and then imagine worst-case scenarios. What happens if real estate values plunge, or your sales fall 50 percent? Assume the bank will play hardball. Will you be able to stay in business?
2. Spread the Risk Rather than relying on a single line of credit, apply for several smaller credit lines at different banks. If one decides to cancel your line, it won't kill all your working capital.
3. Be Too Big to Fail Consider a community bank. The interest rates could be higher, but small banks have the flexibility to tailor loans to your needs. If you're a more important customer for them, they will be more likely to work with you if business goes south.
4. Stick With What Fits If you plan to use a piece of equipment for five years, get a five-year loan. The smaller payments of longer-term debt may be tempting, but you never want to be making payments on something you no longer use.
BURT HELM is a senior writer for Inc. magazine. In 2013, his Inc. feature “After the Squeeze” was awarded the Stephen Barr Award for Feature writing, and his stories “After the Squeeze,” and “Turntable.fm: Where Did the Love Go?” received awards from Society of American Business Editors and Writers. Prior to Inc. he worked as a reporter for Bloomberg News and a department editor for Businessweek. He is a graduate of Yale University with a double major in Physics and English. He lives in Brooklyn, NY. @burthelm