Keeping a Positive Relationship with Your Bank During Financial Distress

Posted April 15, 2014

Many times when I am asked to assist a company that is facing challenging times, I find that its relationship with its bank or financial lender has significantly deteriorated. Having a solid relationship with your bank is extremely important in successfully facing a difficult business environment.

There are some very simple things that you can do to maintain a positive relationship with your bank. In today’s business climate, many banks have to deal with some aspect of poor financial performance of their mid-market customers during the term of their relationship.

In my experience, consistent communication with your bank is a key ingredient to maintain a positive relationship. This means being somewhat proactive by having regular meetings or providing regular updates even during good times. When there are issues, make sure you clearly communicate them with your bank so that they do not come as a complete surprise.

It is also important that if you are going to give your bank bad news it should always include a cohesive description of the current situation and how it arose, your plan for dealing with it, including a timeline, and what, if anything, you need from the bank to achieve your plan. Although banks do not like bad news, if you also provide them with your solution and what that might mean for them, they have a much easier time dealing with it internally.

Also remember that when making requests of your bank the last resort should be to ask for more money. This is a huge red flag that you really have lost control of the situation. This usually signals to them that you have waited too long to deal with an issue. There are practical ways to make such requests, but, they usually require additional consideration from the business owner in terms of equity or collateral. Requests for waiver of covenants, extension of time to comply with certain terms or relief of certain loan restrictions are all reasonable requests in these situations. Generally, banks are not interested in foreclosing on their loans. Given a plausible plan, a bank, for the most part, will look for ways to work with their customers.