Small business owners in driver’s seat for bank loans

December 2, 2015 By    


Here’s some good financial news for businesses: Banks are flush with money and eager to lend.

“Credit is more available than at any time since the Great Recession,” says Walter Simson, principal of Chatham, N.J.-based Ventor Consulting. “A more liberal lending environment has opened a window of opportunity for small business owners to get more capital with less risk.”

You are in the driver’s seat because commercial and community banks are more willing than ever to negotiate terms.

What should you do? First, Simson counsels, if you already have a favorable loan contract then negotiate to lock it in for additional years.

“This is a good time to extend your loan agreement for as long as you can,” he says.

Second, consider negotiating for a better deal.

“If you are in the mood to get better terms, this is the time to do it,” Simson says. “You may be able to get more credit for longer periods at a lower interest rate.”

And that’s not all: Dig deep into your loan contract’s fine print to spot nettlesome provisions that can be modified. Perhaps you can modify loan covenants, which require your business to maintain specified parameters, such as a minimum net worth or cash flow. You might also be able to eliminate clauses that require you, or a sister company, to guarantee the loan, or which hold your personal home as collateral.

Also look for language that allows the bank to call the loan if there is a “material adverse change” in your business operation.

“These clauses are commonly seen when money is hard to get,” Simson says. “While it would surprise me to see them occur in new loan agreements, such clauses might still be in force for loans made back in 2009 or 2010.”

One last tip: Try to root out any language that indicates the bank is lending “at its discretion.” Such clauses might allow your bank to call your loan, or to change its terms, at any time for any reason.

What if your banker won’t budge? Keep in mind that an environment with liberal lending policies rewards people who shop around.

“Go across the street to another lender,” Simson says. “Chances are you will be accommodated.”

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