Situation: A CEO’s company is short of cash to make a scheduled payment against a line of credit. They have been notified that if the payment isn’t made, the bank will transfer cash from the company’s checking account to satisfy the payment. This would compromise their ability to meet payroll and pay vendors. How are your relations with your bank?

Advice from the CEOs:

• What the company needs is time, so that they can pay down the line of credit from cash flow. It is best to compartmentalize any discomfort with this situation. Remember that any bank action generally takes time.
• Advice from the company’s lawyer is that if they stop making deposits, the bank will notice and react negatively. Given that the current interest rate on the line is low, a negative reaction from the bank could lead to an increase in the rate.
• The company has a bargaining chip. The bank does not want to show the company’s line as delinquent. If they admit that a delinquency exists, it puts them in a bad place.
• Develop a contingency plan to guard against the company’s biggest risk – inability to make payroll. Assure that this can be covered.
• Use checks paid by customers to move a portion of company assets to another bank.
• Secure a new line of credit with another bank to cover credit needs, including salary coverage if the current bank acts adversely.
• Assure that any conversations with the bank are documented in letters to the company’s contact at the bank.

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