The bank interviewin the crisis
F&P Blog
Due to the pandemic, many companies are experiencing a drop in sales,
This may be due to the measures taken to contain the crisis or a general reluctance to meet demand, but in some cases orders cannot be completed because global supply chains are disrupted. Clients and customers are unable to pay on time – as a result, short-term liquidity is not sufficient as the expenditure side exceeds the income side. Government aid that has already been applied for may not be granted in the amount requested and required or may simply be delayed.
Characteristics of the crisis
The problems described in the introduction lead to the “third stage of the crisis”, the liquidity crisis. The dwindling cash flow is no longer sufficient to service liabilities and the company increasingly loses its ability to meet all payment obligations in full and on time.
As a result, existing credit lines are permanently fully utilized or even overdrawn, direct debits are returned or payments are delayed and payment targets are missed.
Dialogwith the financing partners
In this situation, ideally at a very early stage, banks and other financing partners are called upon to avert or eliminate the liquidity crisis. These discussions need to be prepared in order to provide the banks with a solid basis for decision-making and to counter any doubts about long-term creditworthiness and the viability of the business model.
If possible, approach your financing partners as soon as you realize that the liquidity crisis is a realistic scenario, i.e. ideally before the bank or leasing company, for example, notices warning signs that something is wrong in your company. Involving banks and other financiers at an early stage is also important and sensible in view of the liability risks that may arise for them.
Talking to a bank during a crisis is undoubtedly an unpleasant thought, but the bank will appreciate having been involved at an early stage – and experience has shown that this proactive approach will set you apart from many other borrowers!
Guard rails for the preparation
- Involve all financing partners on an equal footing; this creates transparency and facilitates the subsequent reorganization and financial restructuring, for which everyone usually has to be involved anyway.
- Collect all relevant data and prepare it in such a way that the bank can get a good picture of your company’s current situation with just a few glances and your explanation. Create maximum transparency; if risk-relevant aspects come to light at a later date, trust will definitely be broken.
- Create a robust action plan (restructuring concept) that shows a way out of the crisis based on realistic assumptions. The action plan must not be too “rosy”, but must also convey that you believe in your company!
- The concept should contain an idea, backed up with figures, of how the financing could be restructured in order to sustainably support the restructuring of the company.
- Do not hesitate to consult specialists you trust (tax advisors, restructuring experts)!
Approach the discussion positively, because as long as there is a discussion, there may also be a way to restructure. The bank has a fundamental interest in restructuring, as this increases the probability of repayment of the funds provided (if it is carried out properly).
In theBank discussion
- You should explain the cause of your company’s crisis transparently (but briefly), addressing external and possibly internal factors – but the focus should be on the future.
- Explain your own restructuring plan and back it up with data and other information from your company. Explain what your assumptions are based on and, of course, what uncertainties they entail. The bank is aware that the plan is just a plan and that there may be deviations, especially in liquidity planning.
- The bank will most likely make extended reporting requirements and possibly also covenants a condition. Have these explained to you and check how they fit in with the restructuring plan.
Competent support during the crisis
F&P is at your side with a high level of expertise, even when the sea gets rough! We are happy to support you with restructuring concepts, the restructuring of financing or negotiations with your financing partners.
