Tightening the belt Featured

8:00pm EDT April 25, 2010

There’s no doubt that the current economic conditions have put a strain on a lot of business relationships. Money is tight and that requires tough decisions both internally and externally. Take banks for instance.

Tough economic conditions forced many banks to rethink how they were doing business. Companies that ran into trouble weren’t getting off easy. Banks needed cash flow to deal with their own problems — remember, banks are businesses, too. What happened was a perception that credit availability tightened. What really happened is that banks that were in trouble did indeed change their methods — they could no longer afford to take any risks. With a lot of bad loans on the books and no end in sight to the downturn, they took a much harder look at each loan. Meanwhile, at banks that weren’t in trouble, they continued to loan money using the same guidelines as before, which were a bit stricter than other banks — which is partly why they were in much better shape than their competitors.

The end result is a banking market where most people feel it’s difficult to get a loan. Compared to several years ago, that is certainly the case. If a financial institution turned you down, there were several competitors who probably had less strict rules and were willing to loan you the money. But now, those same banks have either been seized by the federal government, bought up by a more solid competitor, or are in survival mode and aren’t taking on any additional risks.

So where does that leave you? Probably caught in the middle. You may have a solid plan and some decent returns but maybe not enough for the banks to feel comfortable loaning you the money you need.

Your only option is to persevere and make the tough decisions. Tighten your belt as much as possible and keep going. Get out in the field and listen to your customers. Do everything in your power to get by until economic conditions improve. Here are three general rules to guide you:

  • Be forthright with everyone. Don’t try to hide any troubles you have, that will only undermine the trust people have in you. Spend time talking directly with your clients and customers so they know where you stand and what to expect. Being honest with them will hopefully encourage them to be honest with you about their future plans. You also need to be honest with your banker. Talk about long-term plans and the hurdles you see preventing you from getting there. The better they understand your business, the better off you will be.
  • Lower your pride. In the past, you may have been choosy about what jobs to take or which customers you would serve. In this environment, you need to take every job you can get. Don’t let pride stand in the way of a job. And who knows, that small customer that doesn’t seem like much today might be the one who comes out of the recession on top of the heap. Build as many relationships as you can to take advantage of those situations.
  • Don’t wait to make tough decisions. Keep people that can help your business, but if you have someone you can’t afford, you need to move on sooner rather than later. You still need to do it in a humane way and help the person find another position if possible, but you can’t keep positions that your revenue will no longer support.

If you do everything you can, what you’ll find is that banks are willing to work with you, even if things aren’t perfect. A number of people in the construction industry told me that banks were working with them and were willing to cut debts in some cases by 50 percent. The banks recognized the economic difficulty and would rather have half of the promised amount rather than own a property they would be unable to sell.

The banks that haven’t closed their doors are pushing people hard because they have to remain healthy, but if you do everything you can to run a tight ship, then your bank should work with you to help get you through the economic crisis. But don’t expect your bank to make sacrifices if you aren’t willing to do the same.