Dealing With Your Lender In Troubled Times

Companies with financing arrangements often think that the best way to get through a difficult time is to slip below the radar screen and hope that their lender won't notice. Generally, denial is not the best strategy. Rather, consider a proactive approach.

1. Understand Your Loan Agreement. Often people think they know what the loan agreement says, but in reality, it was often negotiated a few years earlier and what one thinks it says, may not be entirely correct. Therefore, carefully review your loan agreement, especially if you are confronted by potential financial troubles, so you know what you are allowed to do and what prohibitions exist. You should understand your financial covenants, including the definitions of key terms in those covenants. If you have a revolving loan, you should understand the borrowing base, the advance rate and which components of the borrowing base may become ineligible. You should also make sure that you understand the circumstances