The 4 Keys to Securing a Coronavirus-Aid Loan From Your Banker

If you haven’t already, you’ll be meeting (or having a zoom conference) with your banker soon. It’s a key moment for your company. You’ll be competing against other businesses to secure a lifeline. Are you ready?

We reached out to Alan Miltz, who runs cashflowstory.com, a great resource for the current moment, for advice. He shared a simple four-part plan. (We’ll have more from Miltz on Cash flow soon).

“Verne Harnish always says a trait of a great leader is their ability to predict,” says Miltz. “We need to go to the bank with these various stress tests that we’ve done, so that we can say: ‘This is where we are. These are the assumptions that we’ve based our projections on, and this is the cash flow hole that we’re going have, that we need to obviously bridge.’”

Here’s his checklist.

Going to the Bank

1. Play out the likely scenario for the bank.

This needs to provide risk analysis across all facets. Identify the risks and then tell them what you are doing about it:

• Suppliers – will you maintain sufficient supply of product to continue trading? Can you source from multiple places if one source shuts their operation?
• Customers – Are your customers going to continue to buy if they are stuck at home for weeks? Does this apply for all products and all markets? What can you do to expand your sales? Are there positive sales opportunities to come from this crisis?
• Competitors – Do you have the chance to get ahead of your competition through this? How are others in your market reacting and what are you doing differently that your clients will recognize and appreciate?
• Business Continuity – If you have a BC Plan then point to it and show the lender who your plan deals with this scenario. If you don’t have a plan, put one together, and then show the bank. They have such plans and they expect you to have one too (rightly or wrongly).

2. Amend your forecasts.

Now is your chance to recast your numbers and change your lender’s expectations. Show the bank what the likely consequence of any “headwinds” will be. If you can afford your repayments regardless, give them this comfort. If there is a scenario that would see you struggle, now is the time to ask for help – before it happens. The banks are under pressure to be conciliatory in this environment. If you give them warning they will likely be much more supportive than if you surprise them down the track.

3. Know how long you can endure a subdued performance.

You need to show in a financial model how long you can last based on your current income and expense commitments. Give yourself and your lender as much warning about how close or far “doomsday” is so you give yourself as much time as possible to do something about it. Look at the commitments you have and determine which ones can be deferred or cancelled. Look at your sales pipeline and work out what you might be able to pull through faster.

You then need to be able to show how long it would take for you to get back on track. Often with these sort of events it is possible to last through the main challenge period, but the repercussions last way after the event is over. If you are deferring expenses until the event ends, these expenses aren’t going away. You will still have them for a period of time afterwards and you need to show your lender (and yourself) how long it will take before these deferred expenses are all caught up.

4. Reiterate how good the world will be once this is over.

In the heat of battle you and your bank can lose sight of the positives. A bank is much more likely to hold strong and be supportive when they know that the end result will be extremely positive. They want to back winners. Show them why you are a winner!