Buy Some Time

It's one thing to read about other companies being hit by a credit crunch. It's quite another to experience the pressure yourself. But the fact is that many companies are having trouble paying their debts. And business owners are called daily by lending officers who want to collect.

Here are some recommendations for persuading your lender to remain cool:

 Don't deny reality. First, show your banker that you understand the problems. It's important to do this quickly. If your version isn't convincing, things may unravel fast. In all likelihood, the banker will push to liquidate your assets.

 Design a "get-well" plan. Show that you know the right medicine to take — and then take it. You should quickly have ready a cash flow plan that lays out how you'll generate the cash to cover your debt. To gain credibility on your projections, corroborate information from trade journals and other independent sources. Tap your CPA for experience in matters like projections and cash flow.

 Narrow the lender's options. Bankers often like to suggest that a simple way out is to bring in a new bank or new investor. Sounds great, but in a tough business climate, it's often fantasy. Few banks are writing new loans to companies with problems. And finding investors isn't easy. That leaves the bank two options: liquidation or staying with you until business rebounds. You need to convince the bank that sticking with you is the only real option. Use real examples of liquidation values and how inventory and accounts receivable values plunge when a business closes. With some digging, you should be able to find out what happened to companies in your industry.

 Offer a bone. In exchange for going along with you, give the bank something it doesn't have yet. Assuming you've already provided personal guarantees, agree to pay higher interest rates or shorten the loan maturity with a balloon payment. What you're buying is time. Without it, you're probably out of luck.