It’s time once again to start looking at budgeting and forecasting for next year’s business. Likewise, bankers are also evaluating their 2013 books of business and their loan portfolios for 2014. Many NSCA members have experienced that all-too-familiar call from the bank, with a message about re-evaluating revolving line of credits and assessing the preferred types of business loans that will be offered.
For most banks, we fit under the specialty contractor profile … but that’s not a great category to be in for most risk analysts. It’s better to be categorized as a technology provider for the vertical markets you serve. Having end-user clients as your customer base seems less risky than having other contractors as your customers. Banks know exactly how the game is played on construction payment cycles. They only want to be involved on the side closest to the money if at all possible.
NSCA now has a new resource that will give your bank exactly what it’s been looking for. Take the “Electronics Systems Outlook” with you to your next bank meeting, especially if your scope of work focuses on the growing vertical segments. This report will help lenders better understand what you do and the markets you serve. Like bonding companies, bankers want to see a healthy business sector. Fortunately, many primary markets look pretty strong.
Cash flow is a huge issue in our industry (even though I’ve been saying that for 20 years, it’s still true). When cash flow goes bad, everyone – including vendors – feels the impact of delayed collections and payments. What used to be 30 days is now 120 days. Projected cash flow reports are valuable tools to have with you when meeting with your banker.
Another excellent tool to take is a good backlog and sales reports … the backlog and estimated contribution of profit for that upcoming work is especially important. In the past, bankers only asked for historical income reports and balance sheet information; now, however, they want to look forward before extending credit. We have to be prepared for that.
Bankers also look for trends. They want to see that you can pay back an additional line of credit in a short period of time rather than just moving the date forward.
Personal guarantees continue to keep us up at night. Banks want to know about (and attach) assets outside the business to your repayment risk factor. Try to avoid this if at all possible, just as you do with providing a bond. The very purpose of having a corporation is to confine the risk and reward to the business without putting other (personal) assets at risk. Find a bank that’s willing to separate your personal wealth from your business line of credit. It’s easier said than done, but is still doable.
Also, remember that your suppliers are not responsible for your line of credit, nor are they your bank. I hear from many suppliers who feel as if they’re in the banking business right now, and that’s not right … unless terms are negotiated in advance.
So when the bank says no to extending your line of credit, chooses not to reissue your line, or they call your line, get in touch with me for alternative solutions. We have helped many of our members use ways they haven’t thought of in the past, and these options could make a big difference for you. CW