Remaining in good standing with lenders “ain’t what it used to be”, as many of my small business owner bankruptcy clients are telling me these days. As a small business bankruptcy attorney in Indiana, I’m always alert for news about the credit markets that affect my business owner clients. A week or so ago in the Indianapolis Business Journal, reporter Greg Andrews was writing about Emmis Communications, the locally based radio company, and some of the remarks he made sum up the problems I see small business owners facing in today’s climate.

After having said that Emmis seems to be in an enviable position, since it has $68 million in cash and had negotiated favorable borrowing terms with its lenders (ahead of the “meltdown”), with its loan not coming due until the year 2013, Andrews adds, “But it’s not that simple”. What he’s referring to is that lenders today have much, much stricter rules and requirements. Emmis, for example, had to agree to stay within certain “leverage limits” (meaning keep the company’s overall debt levels within a certain percentage of their overall balance sheet and within a certain percentage of earnings). If the company were to exceed the limits, their lender could force Emmis to renegotiate terms, raising fees and interest rates, or even (Greg Andrews says analysts think this is unlikely) force the company into bankruptcy court. Emmis, the report emphasizes, is going on a cost-cutting binge to stay within those debt level limits.

Emmis is a much, much larger company than many of my Indiana small business bankruptcy clients who are struggling financially. As I brought out in Stitches In Time Can Save Nine For Troubled Businesses, in my four bankruptcy law offices in Indianapolis, Columbus, Bloomington, and Anderson, I work with hundreds of small business owners, and one of the saddest aspects of these meetings is that they’re often taking place months or even years after the businesses started having financial problems. What that means is that certain remedies that might have been available no longer are.

Businesses need capital to operate, and that usually means borrowing. The facts of business life today include banks’ going back to much stricter lending standards. On perhaps a smaller scale than Emmis, most small businesses are going to have to stay “in compliance” with debt level limits, just as is happening with Emmis and its lenders. In an earlier blog post, I paraphrased a local bank’s commercial to sum up the way things are today for small businesses trying to borrow money – “It’s not easy, needing green!”