Congratulations! The bank has approved your loan. You have a few days to enjoy the euphoria of landing that line of credit before you need to focus on the reality of implementing the business plan you submitted with the loan application. Achieving this goal depends, in part, on keeping your banker happy. Ninety percent of business failures result from poor management, much of which falls into three general categories.

• Failure of management to anticipate future market conditions;
• Failure of management to learn from experience;
• Failure of management to adapt to a changed environment.

Your banker is well aware of the nexus between ineffective management and business failure. She will be watching your business for evidence of these failures throughout the life of the loan. How your banker perceives you and your business will influence what happens to your loan. The bank is not obligated to renew your loan or to provide you with additional funds should you need them. The bank may even decide to call your loan before it is due. If you repeatedly fail to meet your plan milestones or experience unanticipated losses, the bank may invite you (on short notice, of course) to find another bank. The bank is always looking for ways to increase the quality of its assets by replacing "marginal" clients with those that have good track records and show promise. Being asked to take your business elsewhere is unpleasant at the very least. You will have to put your great growth plans on hold while you devote all of your immediate energy on finding replacement financing. Once you establish a satisfactory banking relationship, you will want to nurture it. The smart businessperson begins to prepare the next loan request the day after the current loan request funds. Creating a successful banking relationship requires that you take certain positive actions while avoiding perilous ones.

The Major "Don'ts"

1. Don't hide from your banker when she calls to inquire about late interest or principal payments. Call your banker the minute you determine that your payment will be late, explain why, and tell her when she can expect to receive your check. The bank prepares a daily report of delinquent borrowers. Your frequent appearance on the list may cause the bank to downgrade your loan.

2. Do not overdraw your account, and never "play the float" or kite checks to solve a cash flow problem. An occasional overdraft due to a clerical error will not alarm your banker. But cash management that depends on the float as a source of working capital will lead to frequent overdrafts, and will damage your management team's credibility.

3. Don't color the information you provide to the bank. Tell it like it is — the good, the bad, and the ugly. Dissembling, stonewalling, or outright lying to a banker cannot possibly have a positive result.

4. Don't pursue unrelated business or private ventures that prevent you from devoting sufficient time and energy to your business that has borrowed the bank's money. A consistent pattern of neglect will lead to a loss in the bank's confidence.

5. Don't take the credit relationship for granted. A former G.H. Goldstick & Company client with an excellent banking relationship used working capital to purchase capital equipment — even though the loan agreement required prior approval by the bank. He only informed the bank after the equipment was delivered and paid for, confident that his excellent relationship with the loan officer and his impeccable payment record would carry the day. It did not, and this client soon found himself scrambling to find another bank.

The Major "Do's"

1. Read your loan agreement carefully and set up internal systems and procedures to ensure that you comply with the loan's technical requirements. A bank is a bureaucratic organization, intent on maintaining a paper trail for senior managers and bank examiners. Many entrepreneurs are far too casual about the technical requirements of loan agreements, such as the submittal of periodic financial statements, certificates of compliance, and evidence of insurance in force. Paying attention to these issues proves your professionalism.

2. Make sure the banker hears any bad new from you first. If a major customer is about to file bankruptcy, throwing doubt on a portion of your receivables, you want to be the bearer of bad tidings. Learning this negative information from a customer or the trade press, for example, could cause your banker to conclude that you were either not on top of your receivables or that you were less than forthcoming in your representations to the bank. Neither conclusion helps your credibility.

3. Keep your banker fully informed about your past and projected performance against your business plan. The bank made the commitment on the basis of the plan, so the plan establishes the benchmark against which the bank will measure your performance as an executive. If you expect the company's future results to fall short of the plan milestones, alert the banker and be prepared to explain why the shortfalls will occur and what you are doing to get back on track.

4. Make promises you can keep, and keep the promises you make. Your character and credibility are your most valuable assets. Making unrealistic and extravagant promises can destroy your reputation.

5. Finally, continue to charm your banker. Periodically invite your banker to your plant or offices and brief her on the current developments in your industry. Explain your strengths and weakness and how your competitive position may have improved or weakened. Explain your strategy for maintaining or increasing your market share. Solicit her opinion about matters in which she is knowledgeable. Make sure she realizes that you appreciate how important she is to the continued growth and prosperity of your business.