By 10am yesterday morning, one of my bank clients had already received five calls from worried borrowers.
These weren’t high risk consumer loans; these were commercial borrowers whose business has been impacted by the pandemic. A fitness studio who can’t have in person classes. Two AirBnB owners who have empty houses. Two restaurants. And that was just by 10am.
(Sidenote: Yes, I just referred to a fitness studio, AirBnBs, and restaurants as not “high risk” borrowers. This is 2020 Nashville, people. It was a different world until a week ago.)
In yesterday’s Tennessean, I told nervous borrowers to call their banker and talk about their concerns.
But what do you say? Here’s an idea of what banks are looking for:
Have a Plan. Don’t just call and ask to not pay for 90 days. Instead, explain to the banker how you are going to use that extra cash in the next 90 days to strengthen your recovery and maximize your chances of survival (and your chances to repay the bank).
Are there easy expenses that you can cut? Are you changing your operations in response? What are you going to do with “the bank’s money” during this time?
Do your Homework. Experts suggest that we’re going to be dealing with coronavirus for weeks and, maybe, months. Even though we have no idea how long this will last, can you give the banker a detailed forecast of your operations during this time?
Show them the bad news (i.e. the projected income), show them the easy and hard cuts you’ve decided to make, show them the fixed costs you can’t avoid (rent, costs of supplies), and show them that you’re trying.
Can you get more capital from other sources? Can you give the bank more collateral? If you can (or can’t), let them know you’ve explored that before asking the bank for help.
The banker probably wants to help you, because your success helps their bottom line too. Here, your goal is to make it easy for her to help you. Provide a roadmap that relies on numbers, solid projections, and is something that your banker can show his bosses when he advocates for you (or, months later, explains why he said “yes” to you).
Have a clear request. If you’ve done your homework and have a detailed plan, you should also be prepared to have a specific “ask” of the banker.
Do you need an extension of your line of credit amount? How much? How did you get that figure?
Do you need a 90 day payment forbearance? Why 90 days?
Do you need a re-amortization of your debt or to make interest-only payments for a few months? How does the lowered payment fit into your budget?
Be a pessimistic optimist. When you call your bank, you’ll be inclined to ask for as little relief as possible, because you’ll want your “ask” to be granted. Maybe you’ll commit to a reduced payment that’s still a little too high.
Here, if you’ve done your homework and come up with a detailed plan, you’ll have a good idea of what you really need from your bank. Ask for that, but maybe a little lower (give yourself some wiggle-room).
You don’t want to get some relief from your bank, but, then, a few weeks later, realize that you can’t perform and need more adjustments.
Long story short, err on the side of being a pessimist, and give yourself some room to under-perform (or over-deliver).
Again, I encourage immediate contact. In my experience, bankers appreciate transparency and dislike surprises (in this context, because these are generally “bad” surprises). Call them, talk to them, and let them know you’re fighting to protect your business.