When Banks Are Forced To Act (when not deciding becomes deciding)

skeleton on rockLast week, Packard Group watched from the sidelines when a bank shifted a business credit to a workout group. By the time we were referred in, the Bank had made it’s decision and it was out of the hands of the owner.

Here’s the story:

Two years ago, the train wreck took place. In the months, quarters, and years that followed, the company was losing money, marketshare, and human resource assets. Suddenly, denial was no longer an option. All too late, the owner reached out to their attorney, desperate for a conversation that could save the company from being picked apart for dimes on the dollar.

Packard gets the referral (from the company’s lawyer) and a conversation takes place. Options and game plan. When the owner called the Bank, they were told that it was no longer in their hands, and they were going into workout. Everybody loses but the bottom feeders.

Lost projects of this sort happen all too often and here’s why: Federal and State regulators demand that bankers make question loans disappear, so it’s not fair to throw rocks at bankers. In this marketplace for money, most banks are forced to work with a short list for eliminating the stress of an underperforming business credit. The business owners do not see the razor sharp teeth of the workout group until they are firmly in its grip. It’s a fire-sale with the only purpose of getting the bank out from under the loan. It has nothing to do with the potential value of business divisions or assets to the right buyer. Workout doesn’t seem to bother with the right buyer, just A buyer.

It is the saddest when this happens near the end of a great run by an owner close to retirement with no time to recover lost ground. I’ve seen them cry as their workforce is dismissed after years of loyal service, millions of dollars of equipment becomes worth a dime on the dollar, and a perfectly functioning factory building is auctioned off in the fire sale. When you’re 45 yrs old, recovery is an option – at 64 yrs old, it is a long shot.

There are many savvy bankers working the credits of our area, and if you have one, you are a lucky business person. If you run into events that steer your company into troubled waters, your savvy banker will see it and bring to your attention remedies to avoid the big trouble that culminates with the introduction to the workout group.

Not paying attention to your banker pointing out troubles (or not believing the troubles to be real) is not uncommon among business owners and the exacerbates the trouble and angers the bank. Not a good idea. It amazes me how often I witness head-in-the-sand behavior by otherwise smart people.

Reacting wisely and well is the better choice.

By the way, last week’s deal will see many people out of work, a big pile of equipment on the auction block, and a sorrowful ending to a long established business.

Could’a. Would’a. Should’a.

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