Open the Door to Banking Relationships

By Peter Martin | May 04, 2009
There has never been a better time to have a positive relationship with your lender.

As an ethanol plant manager, you know where you've borrowed money but do you have a one-on-one relationship with your banker? Have you met their approver? Consider this relationship from the lender's perspective. Once the bank approves a loan, they become your business partner and should be in the loop on the ups - and downs - of your operation.

From a lending perspective, the ethanol industry might not be the easiest to understand. It is an industry that has caught a bad rap in the past year due to high commodity prices and media reports of bankruptcies and foreclosures. Lenders are skittish about giving money to an industry that is publicly struggling and financing is possibly the single biggest hurdle for ethanol projects at the present time. For these reasons, a personal relationship with your banker is critical. If a loan officer has a misunderstanding about ethanol, they might be bearish about getting involved. However, if you engage them and educate them the odds begin to lean in your favor. Prove that your business can be profitable if managed correctly. Don't allow your operation to be grouped into a negative aspect of the industry. Inquire about changes in the lenders credit policy and lending authority and how those changes will affect your operation. Ask the same questions of any participating banks.

Now is absolutely the worst time to surprise your lender. Be sure to communicate with them about your financial situation. Since most credit facilities are structured by loan covenants including minimum net worth and debt service coverage ratio, you need to fully understand these ratios and their impact on your plant. This is not a time to violate covenants with a lender, especially if they don't see it coming. Keeping the communication lines open lets the lender see you are doing everything you agreed to at the inception of the loan.

As with any other business partner, keep your banking partner in the loop and don't be afraid to discuss your books. Raise red flags early so the bank can provide help and discuss options for the future. Remember that your lender has money on the line too and will be willing to help if given the opportunity. However, if challenges are not presented early on it might be too late to offer assistance by the time your lender becomes involved and they will be left with few choices.

The bottom line is that people do business with people they like and trust. Your lender needs to have confidence in you and your operation and the best way to do that is to open your doors and bring your banker to visit the plant. Take your loan officer, credit approvers and loan committee members on a ground-floor tour. Introduce them to your employees. Allow them to see you in a management role. All of these things will earn confidence points with your financial institution and give the approvers some buy-in to your operation.

There are financial consultants available that can utilize their lender experience, knowledge and contacts to assist borrowers in achieving their end goal. If you are interested in reviewing your existing lending package it could be worth your time to reach out to these types of businesses for assistance.

Peter Martin is a finance consultant at Kennedy & Coe LLC. Reach him at pmartin@kcoe.com or (970) 506-2419.