Successful bank financing: an expert's advice to small and medium-sized businesses.

Denial won't work when your banker curtails your credit. Here are some corrective action steps:

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1. While verbal repartee may satisfy your ego and remind the banker of the previous good days of the banking relationship, plus all the interest the bank has earned over time, tone down your combative attitude and rein in your volcanic fury. Threatening the banker with moving the lending relationship can be a significant inconvenience and create turbulence in your business.

2. Ensure the lender has a graspable understanding of the current problems of your business vs. seemingly uncontrollable and bizarre circumstances, such as a surefire expansion that went awry and consumed tremendous capital along the way. Rather than rely on verbally communicated proactive measures that may never get effectively communicated to more senior loan officers in a committee, come armed with a tactical game plan that doesn't rely on chance or charity that paper over underlying problems:

* Updated monthly pro forma projections, including detailed cash budgets and realistic assumptions.

* Overview of historical financial performance vs. actual and explanations behind overbudget variances.

* Cost-cutting measures and improved cash flow measures (including officers' salary reductions, selling the company-owned airplane and excess personal vehicles, and reducing accounts receivable by 90 days).

* Timely monthly financial statements with percentage comparisons to prior month and year-to-date to show improved trends and action steps implemented/to be implemented.

* Updated collateral reports showing the bank is well collateralized in spite of large losses, or in the alternative, selling underutilized corporate assets (excess equipment) and personal assets (vacation home) to reduce the bank's indebtedness.

* Updated personal financial statement (if older than one year) vs. the banking repeatedly asking for this.

* Updated business plan focusing on your core market niche, pricing strategy, weeding out unprofitable customers vs. sales, sales, sales as the company cure-all.

* Consider hiring an outside consultant to give an objective viewpoint and bring creditability back to the lender.

And if that doesn't work ...

When it's time to shop around for a new lender, several alternatives are usually available, albeit at higher borrowing rates.

Asset-based lenders -- Be prepared for understanding a whole new set of bank-speak language such as collateral values based on a liquidation scenario, a borrowing base that emphasizes worst-case scenarios and which excludes certain assets for borrowing because of a perceived difficulty to perfect valid liens, lower real estate values than those typically granted by commercial banks and significant upfront due diligence deposit. The good news is that asset-based lenders usually move more quickly in structuring a proposal letter because of competition. As opposed to traditional commercial bankers that are horrified by high leverage, asset-based lenders look at cash flow coverage as well as asset values to offer certain lender availability advantages. One note of caution: Avoid nasty surprises by ensuring that the final commitment letter is very near the bank's proposal letter or request a return of the due diligence fee. Often it is the business development officer on a commission incentive basis who issues the proposal letter whereas the institution's underwriter (credit officer) issues the commitment letter after the due diligence is completed--and amazing changes can and often do occur.

Factors -- Pricey, but can structure increased availability on receivables financing when your commercial lender wants to reduce its credit exposure.

Equipment financing companies -- Specialize in term lending on machinery and equipment values (M & E) based on a determined percentage of liquidation values. Often this financing can complement factoring or asset-based lending, which certain institutions may wish to avoid heavy term loan reliance vs. working capital based borrowings (receivables and inventories).

Purchase order financing -- Probably the priciest of the financial vehicles, but when cash is king to the survival of your business based on growing customer purchase orders, this may be a viable alternative--if your profit margins can weather the cost.

Lawrence Gardner is president of Lawrence Gardner Associates, managerial and financial consultants in Troy, a member of the Detroit Regional Chamber. For more tips from Gardner, visit the Detroiter Online at www.detroitchamber.com and see: "Successful bank financing is not a game--even if it's sometimes played like one."

For more articles, tips and resources on finance/legal issues, visit the Detroit Regional Chamber's Small Business Central at www.detroitchamber.com.