Do you know how to engage and communicate with one of your company’s key stakeholders – your bank? We sat down with Jim Robinson, President and Dennis Gistinger, Senior Vice President of Southeast Michigan’s TCF Bank and asked them their thoughts on how best to engage with your bank.
- How has the level and frequency of communication with customers changed due to COVID?
The pandemic has led to an economic crisis unlike any other seen in a very long time and this calamity has been felt across the world. Almost every business has been impacted in one way or another and typically these changes were adverse and require critical and regular communication between the clients and the bank.
- If I am a client of the bank and my business has been negatively impacted by COVID, when should I talk to my bank about it?
You should talk to your bank sooner rather than later and be prepared to provide details, reports, and forecasts showing the magnitude of the impact to the business. We would always encourage customers to keep their bank up to speed with developments, both good and bad. Your bank can be a much better partner when they are fully informed.
- When the bank says they “want to see a plan”, what are some of the things you like to see in that plan?
Basic information would include a 13-week cash flow including cash balances/line of credit availability and a revised 2020 forecast balance sheet and profit and loss statement. It is also important to deliver your required reporting on time to your bank (i.e. monthly borrowing base certificates with required backup detail, covenant compliance certificates, field audits, appraisals.) Additional requests for detail depend upon the severity of the impact to the financial condition of the company and to what degree the company’s repayment ability has adversely changed.
- What are your expectations for your customer to manage their plan?
We request these plans from the customer as a representation by management of the most likely scenario of the short-term financial results that are expected. A current trend is also prepared to provide both worst case/best case results and include key assumptions. We assume these plans have been reviewed by the owners, controller/CFO and other advisors. The 13-week cash flow may be reviewed as often as weekly between the bank and the customer. This allows prompt communication on any variances and what caused the changes as well as the opportunity for the customer to modify the next 13-week cash flow and update new pro-forma financial statement. These are never easy conversations to have but the customer should be realistic about their plan and be willing to explain the steps on addressing the challenges. In good times or bad times, your relationship manager is your primary point of contact at the bank. The more he or she is kept informed on the current status of the plan the better equipped they are to communicate pertinent details with other members of the bank.
- What tools do you have available to customers to manage through the current economic challenges?
TCF Bank was a strong supporter of the Cares Act Payroll Protection Program and we provided over $2 billion in loans [23,000+ loans to businesses with more than 250,000+ employees] to TCF Bank customers and non-customers. We have approved a $1B loan program to support minority and women owned businesses. TCF is also a participating bank in the Federal Reserve’s Main Street Lending program to support larger businesses. We are a preferred lender with the Small Business Administration (“SBA”) and we also provide Asset Based Lending, Capital Solutions leasing and have a Structured Finance group.
- What significant red flags do you look for in a customer to identify if they are in financial trouble?
Red flags include recurring operating losses, sales declines, over-formula on LOC, overdrafts, unpaid or late taxes/rent/loan/leases, stretching of suppliers, late reporting of required financial information/reports, late or delayed replies from management to phone call or emails.
- If my company is close to renewal and is struggling or has violated covenants, will the renewal process look different?
It really starts with the timely, open dialogue that hopefully started 120+ days ago between the company and the bank. The bank should have already requested all current financial statements, reports and the items noted in the plan above. The loan renewal process this year could include direct conversation with the bank regarding the customer’s assessment of the financial impact of Covid-19. The review of the 13-week cash flow and or cash burn analysis may lead to a shorter renewal period to allow the bank to review the customer’s execution of the plan through the next several quarters. The bank periodically reviews other third-party reports such as field exams, appraisals and this may be required now due to the increased risk profile of the business that was caused by Covid-19.
- Will there be additional fees, documentation, or requirements?
Every situation is different and all factors need to be considered with an open mind. In banking there has always been the direct correlation between risk and return. If the risk profile of the credit has deteriorated due to any number of factors, i.e., reduced capitalization of a company, recurring losses impacting repayment, collateral impairment, etc., there is a potential increase in costs to compensate the bank for the additional risk as well as the increased administration of the credit. Documentation may need to be revisited if there are waivers or a reset of covenants in order to memorialize the changes to the loan documents. In some cases, additional requirements might be necessary due to the increased monitoring of the credit that are now required. Additional monitoring, waiving, re-setting or frequency of administering the credit all increase costs which banks then want to be compensated for these additional expenditures.
- What does it mean to be put into “Workout or Special Assets Group (SAG)”? And how does this change things for me as a business owner? What does it mean for my business?
As the owner: continue to remain open and honest about what is happening with the business. Your relationship manager goes through an internal transition (“hand off’) of the credit to the SAG lender. SAG lenders are typically very experienced that work on a limited number of customers due to the additional administration required for these customers that have gone through some significant deterioration in their business. Typical Relationship Managers have a significantly higher number of clients than a SAG lender – you now have someone that can spend a greater amount of time reviewing a detailed plan. It is always the bank’s plan to see the business rehabilitated and returned to the previous healthy financial condition. Some businesses will need to consider difficult decisions and may need to engage with other consultants and advisors to determine options. Again, transparency with your banker will provide timely feedback from the bank on what the bank can or cannot do to assist during this challenging time.
- Is it possible for me to move back to the traditional banking side of the bank once I have been moved to Workout or SAG?
YES, this is possible and is usually the result of a strong partnership and open communication between the customer and the bank. Once the risk profile has returned to mutually agreed upon conditions, then a transfer back to the traditional side of bank is possible.
- When should I engage with an outside consultant?
The earlier, the better. Many consultants are willing to sit down with you at no cost to discuss your unique situation with you. If there is turmoil in your business, seeking sound third party consultants can be a very prudent decision. You should always discuss your challenges with your other key advisors; CPA firm, Corporate Attorney, Bank(s), loan officer.
If you would like to engage with an outside consultant, then call us. You are not alone. We can help. At DWH, we’re here for you, even remotely. Please feel free to reach out as we would be happy to discuss your situation. We would like to thank TCF Bank for their collaboration on this article. If you have questions on how they can assist you, feel free to reach out to them.
Managing Director, DWH Corp.
200 Renaissance Center, Suite 3140
Detroit, MI 48226
Cell: (734) 341.9336
Regional President, TCF Bank | Southeast Michigan
333 West Fort Street, Suite 1800
Detroit, MI 48226
Office: (248) 244-2866
Cell: (313) 622-5509
Dennis J. Gistinger
Senior Vice President, TCF Bank | Business Development Officer
2301 W. Big Beaver, Suite 200
Troy, MI 48084
Office: (248) 498-2865
Cell: (248) 760-0317