Your major customer has suddenly started taking longer to pay his bills, so you decide it’s time to go apply for a bank loan. What happens if the banker says, “I’m sorry, but we aren’t able to extend you a line of credit at this time.” Rather than threatening said banker with bodily harm (as satisfying as that might seem) or worse, there are some alternative actions you might take. 

1.    Raise his comfort level. First, make sure you have presented the banker an accurate financial picture of your business. Did you print off a sloppily formatted internal financial statement and hand it to your banker or did you present a compiled/reviewed or audited financial statement prepared by a CPA? These two documents offer a different level of comfort for a potential banker, so you might want to consider getting a CPA involved in your financial statements. It might simply be a presentation problem.

2.    Find hidden cash. Maybe you don’t need a bank loan to generate additional cash in your business. If your dollars are tied up in inventory , you might need to consider alternative distribution channels for your product. Are there ways you haven’t considered to liquidate some inventory? Are there ways to create smaller packaging or smaller bundled units to bring down your overall price point without discounting?

3.    Fire some customers. OK, this one sounds counterintuitive, but think about it. Do you have customers who are using you as their personal banker?  Review your customer list and see which customers are responsible for the highest margins and the best payment terms. Maybe, if you have fewer customers who were more profitable and paid on time, you wouldn’t need to carry so much inventory or purchase so many raw materials. Cash flow is a symptom, not the root cause; change your focus and you might uncover the real problem.

4.    Talk to your suppliers. See how they are handling cash flow problems and look for alternate payment plans that might be available in the short term.  They might be willing to assist you by offering a monthly payment plan or other arrangement.

5.   Try again. Different banks have different requirements. Try another banker to see if your business fills a void in their portfolio. And if you still don’t qualify, find out from the banker what elements of your business need improving and see how you can make adjustments in your business.