“You can always go in and rework a loan, especially these days,” says Lawrence Gelburd, a lecturer on entrepreneurship at Wharton.
Lenders will consider options that can reduce the risk of non-payment, particularly when you’ve developed a good working relationship over time. But even if you are working with a new lender, there is often a good business case to be made.
Terms of the loan that might be negotiable include the following:
- Interest rate;
- Payment amount;
- Payment schedule; and
- Loan covenants
Talk to your banker at the first sign of trouble. “Give your lender a chance to do the right thing,” says Gelburd, a former entrepreneur who advises small companies.
If you’re concerned that bankers will pull your loan in a knee-jerk reaction, don’t be, he says. “First, they’re so stunned that anyone told them the truth, they tend to like it. Second, their business is based on not having loans go bad. But you have to give them time. That’s the key.”
Before you call your banker to try to renegotiate a loan, get a fix on the source of your financial problem and come up with a plan to overcome it, whether it’s new marketing to increase sales or a new operations tactic to boost efficiency. Be prepared to provide three to six months of cash-flow projections but avoid painting rosy scenarios.
You may also want to consider getting help from a lawyer, accountant or a loan consultant. But don’t try to wing it, because bankers also will take your business-planning ability into consideration as they make a decision. They’ll also look at your track record, so don’t get behind on payments.
Many business owners wait too long before trying to renegotiate their loans.
“It’s sort of like going to the dentist. Everybody’s afraid to deal with it, so they wait until it’s gone bad,” says Gelburd. “If you don’t go in until it’s blown up, you have a problem.”