By Tim Garrison
In today’s environment business owners have to be proactive to provide safeguards in where there money is, is it protected what are the rules for this, what do I need to be doing in checking on my financial institution. Further with the liquidity issues loan renewals and/or new loan requests are going to be more challenging than in the past.
Proactive steps to check on your banks checking / money market accounts:
Is my money safe (FDIC www.fdic.gov insured to $250k thru 12/09 at this point then it returns to the $100k for checking per owner 1/1/10)
Should I open another account in a different bank if I have more than $250k – this is an option but setting up a sweep account that takes the money and invests in an investment account can accomplish the same thing if assets held by NFS or possibly other similar type firms watch limits noted below.
Check on bank financials to see how they are doing a source I found for various bank ratings and financial information is www.fdic.gov/bank/individual/bank/index.html
Investment accounts and how this works when assets held by bank or possibly National Financial Securities NFS (NFS holding assets removes risk of bank failure putting assets at risk within limits noted below)
Investments – SIPC covers the first $500k (there are separate limits that apply to cash and securities within the $500k)
Investments – CAPCO insurance covers amounts in excess of the $500k (purchased by bank you will need to verify if your bank provides this)
We have all heard by now the stories of businesses that go to use a credit facility and not be able to draw on the availability that is there for various reasons.
Areas to be proactive in overall loan relationship coupled with areas to watch:
Know your loan renewal dates for line of credit and term loans. In this environment we have seen credit lines get cancelled if there is nothing outstanding without notice being sent.
Something to be aware of not a statement that all banks are doing this!
Keep your banker up to speed on financial results – they hate surprises
Be prepared for more questions and for many companies the renewal process over next 12 months will be more painful than in the past. You need to plan for this and be proactive in what you are doing to help cash flow, and ratios.
Know your loan covenants concerning ratios and limitations or restrictions built into loan – don’t create a problem if you can avoid it.
DO NOT BOUNCE CHECKS – this is a major red flag to the bank and to outside creditors (the information is available in credit checks). If you do bounce a check get it covered promptly.
If you have a borrowing base and come up short be proactive with bank on what and when you will be bringing it back into balance.
In this environment I would use the credit line once in a while and pay it back just to ensure that it is still there and available. Also in the times we are in the credit line will likely be used but if you get a chance to pay it down even briefly do it (see last point)
The business environment today will cause businesses to have difficult to impossible loan renewals – you have to be prepared for this consulting with your professionals to see what strategies would be appropriate to protect cash of your business. There are times when this might require setting up a bank account outside of bank where primary loans are.
The information above is a brief overview and is not to be used as legal or financial advice be sure to employ your own financial advisor to check on these areas.
Tim Garrison
The Controllership Group, Inc.
317-572-1227
