The Importance of Lender Communication
If the pandemic has taught us anything, it is that clear, concise communication is extremely important. Speaking often and honestly goes a long with building trust. This advice extends beyond our personal lives.
In business, communication with customers, employees and partners is equally important. Partners include lenders, and they need to hear what is really going on within a business - the good, bad, and ugly.
If a business is in distress, communicating early and often is important for a few reasons. First, it builds trust because when you are transparent with issues and are forthcoming, lenders may be more willing to work together towards a solution. Second, it gives both the owner and lender more options, i.e. increasing advance rates, delaying borrowing base reductions, etc. Lastly, it may save the business; communicating early forces issues to be addressed and will help prevent a lender from taking default or liquidation actions. Conversely, if the business is growing, early communication will allow them to meet the needs of the business as it grows.
When working with lenders, openness and truth are paramount. Owners can share exact situations or difficulties, as well as thoughts and/or plans to get through it so a solution can proposed. Key information should be ready for a lender, such as a rolling 13-week cash flow to help with near-term needs and expectations and eliminates surprises. Owners and lenders all know that cash is king when running a business. Having a good handle on cash can’t be emphasized enough. A lender will also want to see current financial statements and collateral reporting such as A/R and A/P agings and inventory reports.
If a business is struggling, outside help can be invaluable. There are several organizations like SCORE, local county economic development office or a municipal chamber of commerce that can provide business resources. I know that when difficulties arise, a business owner's first instinct is to reduce spending. But adding the right experts may make the difference in success or failure. Using a part-time CFO can assist with preparation of financial reporting as well as analyze the cash position. Other consultants can review purchasing and production to find areas for improvement. Advisors and turnaround consultants provide valuable expertise and can help see the forest through the trees. If mistakes are happening, they need to be remedied and not repeated.
All good relationships require good communication. Lender relationships are no different. A point to remember is that lenders are successful when their clients are successful. They have the same goals. Talking early and often builds that relationship and very important trust.