How to Negotiate a Line of Credit

What’s your debt–service coverage ratio?

Coard notes, “We look for 1.25 to 1 debt–service coverage ratio. This means for every dollar of debt that you owe or you want to finance, we want you to have $1.25 of income.” Coard adds that the business owner’s financial net worth and liquidity are important when the lender is looking for a secondary source of repayment. “We analyze your assets and liabilities to help determine if borrowing additional financing is or isn’t going to be a problem for you.”

What’s your personal credit history?

Yes, banks review your company’s performance, but businesses don’t pay the bank back, people do. “The business owner’s credit score and payment history are indicators of the business owner’s reliability,” says Coard. If you make consistently late payments that can’t be reasonably justified, then chances are your loan request will get denied. Coard acknowledges that the past few years have been difficult for business owners.  She advises business owners to always communicate with their lenders to inform them of both positive and negative events that affect their business.

Build A Rapport

One way entrepreneurs can ease the pain of poor credit is to establish a rapport with a banker long before they apply for a loan. This isn’t the teller whose kids’ names you know when you deposit your checks. This is a business banker who understands your industry—a trusted adviser on par with your accountant or lawyer. Ask a branch manager for a referral. Then tell the business banker who you are, what you do, and ask how he or she can help grow your company. You should meet with this person regularly.

It was a long-term relationship with Liberty Bank & Trust Co. (No. 5 on the be banks list with $464 million in assets) president Alden J. McDonald Jr. that enabled Norm and Michelle Gobert to acquire financing for their business, Signs Now New Orleans. Located downtown near the Mercedes-Benz Superdome, Signs Now New Orleans produces promotional banners for events and advertising vehicle wraps for buses and streetcars. The Goberts recently obtained a $300,000 bank loan to boost their business’ sign-making capabilities. They bought equipment to produce  signage and displays that had previously been outsourced and to make their production processes more efficient.  But beyond the owners’ ongoing personal relationship with their banker, Signs Now New Orleans has a history of profitability that spans more than 20 years, even during tough times that included a storefront rebuild after Hurricane Katrina.

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