If you have been denied an increase for your credit line, after you yell, scream, and swear, take a step back and relax. While you are understandably upset, you need to compose yourself in order for you to analyze the situation and come up with a plan of action. If you haven’t already asked your loan officer the reasoning behind their decision, do so, but be calm and professional.
Analyze the following items, have you been paying down your credit line on a consistent basis, are you honoring all of the loan covenants, is your business profitable and generating enough cash flow to service the current debt. In most cases after answering these questions, therein will hold your answer as to why they have turned you down for an increase.
If you have been paying down your credit line on a consistent basis, but they are worried about the payback on the credit line, you can ask them to term out a portion of the credit line to move the debt from a short term liability to a long term liability, which will improve your current ratio. Calculate the debt service on the long term note and find out if you can service this debt on a monthly basis. If you have adaquate cash flow to service the debt, that will help your cause.
If they agree to term out a portion of the current line, your next move would be to find out if you can use the amount termed out as available to use as part of your line of credit. In essence what they have done is to move a portion of your debt to a long term basis, and have kept your credit line at the same capped amount, while giving you some cash in which to operate your business. This scenario will only work and make sense to your bank if you have adequate cash flow.
Based upon your current projections, you need both a profit and loss and a cash flow projection, of which the cash flow projection is the more important one. They are not the same and you should know the difference between the two. Cash flow drives the business while the profit and loss statement is the report card on how your business is performing.
You have to be creative at times as the bank is only interested in one thing, are we going to get paid back the money that we have loaned you. In order to accomplish the above you must have a good relationship with your loan officer, and always be truthful about the state of your business. If you have a good relationship with your loan officer and they trust you, they can be your ally, or champion within the bank.
If you do not have adequate cash flow to accomplish the above, then you really need to be creative. You can look at outside investors, another lending institution, factoring receivables or cutting overhead and expenses. Each situation is different and the most important thing is to stay calm, focused, and professional.
For more information, please contact us at 330-620-2761 or visit us at www.netprofitinc.org
