Did you say credit continuity? Absolutely! Just because your successor may have the same last name as you does not necessarily mean credit continuity is automatically transferable to your successor(s). Capital is the life blood of a business and oftentimes access to lending capability is predicated upon the financial backing of the current owner through personal guarantees. Credit continuity is not automatic. It must be achieved pragmatically and strategically over time.
Depending upon economic conditions, credit continuity can be more challenging. For example, let’s examine the current state of the economy. Banks and other lending institutions are writing off significant losses. Lending requirements are becoming more stringent in light of the recent sub-prime mortgage debacle. Additionally, circumstances such as the predictable dip in profitability during a business transition and estate liquidity needs could also impact access to business capital.
Consider the following to ensure credit continuity with your lending institutions.
- Educate your successor in the financial management of the business, not just operations.
- Involve your successor in meetings with lending partners so that he/she can begin building relationships and give critical lending partners confidence in their ability.
- Attempt to transfer some financial responsibility and liability over time.
Each of these steps should assist you in your pursuit to achieve credit continuity.
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