10/15/2009
Your business is fine but your bank hesitates. It might be...
Could you be "Guilty by Association"?
I had the pleasure to meet with a successful business in a failing industry classification in a geographically challenged region. Both the industry and location are out of favor with banks, and understandably so.
Before alarms go off, it is important to note that this company is the exception within their industry classification, the benefactor of the contraction in the industry. The business numbers are solid. Credit scores are fine. The client base is impressively stable and diversified. They are steady and busy. They have made every payment as agreed and haven't done a thing "wrong". Again, they are the exception within their industry.
The bank will not renew the commercial notes (lines & balloons), dragging their feet on even 60 day extensions, almost in a passive aggressive manner. Reading in between the lines, the bank is implying that the business needs to find another bank, without having the courtesy and temerity to simply say so.
The business has been judged guilty by association: living in a tough industry code in challenged state geographically.
Some banks are reducing their aggregate exposure in this industry classification (or maybe your industry) without exceptions and no matter what the cost. Portfolios can indeed become too highly concentrated (too many of this industry, or that collateral type, etc.). Sometimes a bank might be overly criticized by Wall Street analysts, placing its share price in question. Sometimes, a bank regulator might deem that the bank has too high of a concentration in a certain industry. Whatever the reason, they have their marching orders to reduce the concentration, period.
Many of the bank's clients in this portion of the portfolio are simply not in a position to refinance elsewhere. That means in order for the bank to reduce its exposure in this industry classification, they must close & liquidate portions of the portfolio, try to turn around other portions, and / or ask those who are stable to find another bank simply because they can.
Those who still have the ability to refinance elsewhere are seeing their rates jump (in this case by almost 6.00%) without more permanent renewals, rather living on 60 day extensions. It is clear to me that the company falls into this category ("those who can refinance elsewhere").
It's lousy, but one can certainly be caught up as collateral damage (if you'll pardon the pun) as a stable firm with a viable future and good numbers that has the ability to refinance elsewhere.
Time is finite. A fickle commercial lender might take just long enough to exhaust your chances of an alternative plan or a counter move.
Professional help should be brought in now, not later, now.
Please see my website: www.BrettBowen.com and ask how we might help.
(Copyright Brett Bowen 2009. Please seek proper permissions.)