Welcome to the first edition of the Stratacus blog!
Two years ago I forewarned clients to hoard away cash while doing everything possible to clean up their business line of credit before the onslaught obliterated banks and hedge funds– like the fall of the Roman Empire.
As an experienced middle-market banking professional and business advisor I could see an approaching tidal wave as though a lookout perched in a crow’s nest. In fact, during my career, I worked in foreign currency consulting corporate clients daily about knee-jerk reactions to market conditions.
The tumultuous fiasco has resulted in vapor trails of businesses that have collapsed because they were not prepared for a brooding economic environment. Their minds had been ingrained with the misconception that banks were there to assist them even during tough times. . .
Since leaving the banking industry, I’ve taken the path of a financial soldier of fortune. As a certified business advisor with advanced credit training and risk management my expertise and services are offered to companies and individuals alike.
To give you some insight into a business banker’s situation– it can take months of hounding prospects until they decide to transition their accounts. Business owners are skeptical about leaving an existing banking relationship because they’re afraid of the unknown. In other words, what if I exit my relationship with bank (A) for Bank (B) and the new bank won’t match or exceed my line of credit? That’s a scary thought to someone who needs that operational line to exist.
Just a bit of information for those unfamiliar with the subject: when a company goes out of business such as chapter (11) not chapter (13) they don’t actually close their doors, but go through a recover period instead. Once a company files for bankruptcy protection, the US Bankruptcy Court and its fiduciary trustee take control. From this point forward a company’s banking deposits are carefully monitored and assigned specific numbers to keep track of its activities.
What does this mean to a banking institution you may ask? Well, deposits . . . many of them. (DIP) debtor in possession accounts can be voluminous. Example: XYZ Electronic store with a national footprint goes out of business (chapter 11) and a particular bank gets all its deposits. Of course most institutions won’t lend to a (DIP) until they receive special approval from the US Court. On the other hand, banks love having the money that flows through the accounts on a regular basis. These funds are usually the retailer paying its suppliers and vice versa.
I’ve had people ask me what happens from the banking perspective. I don’t represent myself as an attorney, and you should always seek professional legal counsel for any questions you have related to these types of matters. *Needed to mention that*.
As a business banker it was difficult explaining to a loyal customer that we could not lend him money because his company balance sheet showed negative results the past three years. To make matters worse– he was personally (overleveraged) meaning, he had no cash on hand, used 90% of the equity from his home and was upside down in an expensive car lease.
The typical response, “I’ve been with you guys for years– I don’t understand how you can do this to me. You gave me money when I started the business”.
Folks, banks only want to lend money to businesses that show a positive cash flow, good credit and collateral. 10 out of 10 times they also want a (PG) personal guarantee and rarely lend money without one. That’s it in a nut shell!
There are instances where a new business owner gets an overdraft line of credit when they first open their doors. Depending upon the bank you may get approved for around two thousand to twenty thousand dollars. Typically, this is based on your personal credit score, which must pass specific bank criteria. Anything above these amounts require a better than average credit score (750 – 800) with at least three years in business. Alternatively, banks may suggest the (SBA) Small business Administration 7a express route, but there’s more to this than meets the eye.
Let’s call a spade to spade; when it comes to the mortgage crisis, people were given loans they simply could not support. Think for a moment, if you make $40K per year before taxes can you actually afford a house valued at $200K? Perhaps— if you were placed into an exotic finance deal along with an (ARM) adjustable rate mortgage. But when the bow breaks the cradle will fall—and down will come America cradle and all.
The blame is basically 60/40. The banks and mortgage companies were well aware of what they did, and the customer knew they were not positioned to handle that type of request once the ARM broke. The customer was just thinking about the windfall profit on the sale of the home two or three years later. They never expected to get sick, lose their jobs—or experience the fall of the American economy along with the largest banks global hedges funds, and the top three American auto makers.
Fortunately my clients were businesses so in essence, I wasn’t exposed to the financial shenanigans that engulfed our country. My bad experiences were fraud related and typically dealt with scammers looking to pull a fast one. There are lots of stories I could tell and maybe one day I’ll share them.
After spending a number of years in the industry and becoming intimate with the system I went through some really upsetting things that didn’t rest well with me. There came a point when I considered myself a rogue banker. Ridiculous as this may sound, my agnostic way of thinking didn’t play well with management, but nonetheless, I would preach to anyone who would heed my insight.
Getting the economy back on track boils down to respected leadership and people who can envision what is necessary to make the right decisions that will benefit the masses. 2009 must– bring sweeping changes and polices that will be carefully monitored and enforced by financial experts and authorities who can insure the best positive outcome while keeping their noses to the grindstone, ears to the walls and eyes wide open.
Remember this quote, “With malice toward none; with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds…. “
I appreciate your visiting, and look forward to adding my thoughts.
Have happy New Year!