Whether you have a line of credit, a term loan, or some other bank credit facility, here are eight suggestions to more intelligently manage your debt as you scale your business.
1. Negotiate better interest rates with your lenders. The best tool to help you do this is to get your lenders competing for your business. It's a critical shift, but one that takes you out of the "applicant" and transform them into the sales person working to earn your business.
The conversation sounds something like, "Mark, we're in the process of interviewing banks to see who we want to select to refinance our equipment loans with. Is this a good time for me to ask you some questions to see if your bank might be a good fit for us to work with?"
2. Negotiate better amortization schedules. The longer you pay off your loan over the lower your payment will be. If the loan amortizes over five years your payment will be lower than if it pays off over three years. Ten years is even better.
You can always pay extra principle (assuming you follow tip 4 below and eliminate or reduce any prepayment penalties), the key is to minimize your required payment to guard your cash flow if you have a short term down turn.
3. Negotiate better payment terms. If you need to protect your cash flow, see if you can have your interest and principle accrue. Or if you can have interest only payments due. If protecting cash flow is a key goal, then making your minimum payment as low as possible gives your business the maximum flexibility to protect its cash flow. You can always turn an interest only payment into an amortizing one by paying down additional principal.
4. Negotiate away the hidden "gotcha's". Fight hard when you're negotiating with your lender to avoid or minimize hidden costs and penalties like loan "origination fees", or "payment processing fees", "automatic rate increases", "prepayment penalties". Watch out for cross collateralization clauses that allow your lender to seize money in other operating accounts you company has with them (or at the very least shift your operating accounts to another bank!)
Pay attention to the small print, it often has a way of coming back to haunt you if you ignore it.
5. Work to remove personal guarantees. If you can't get the loan without the guarantee, at least limit the scope of the guarantee to be as narrow as you can manage. If you're married, keep your spouse off the guarantee.
6. Bankers hate surprises, so keep them in the loop and minimize any potential to surprise them. Break any bad news to them slowly and early.
7. When you give them your loan package or reporting, give them the data in a friendly way - via a spreadsheet. They'll appreciate getting the data they can manipulate versus getting a pdf they have to re-enter. It's a more minor point, but you'll make a friend this way.
8. Get your banker's cell phone. I've noticed that in the banking world, sharp players end up moving around as they get courted and recruited to go to the next opportunity. I've seen many of our business coaching clients get bankers to compete for their business because they kept in contact with their old banker who moved to a new bank. Having your banker's cell makes it easier to stay in contact once they've left their old bank.