The banks are calling notes, not extending or rolling notes over and are foreclosing, rather then working with you. Are you ready?

When I last wrote about the current banking climate, a few months ago, and the effect their problems can and will have on many commercial borrowers, I was reporting tougher standards in underwriting new loans. Many more rejections are occurring, but more dangerous are the withdrawals from previously established lines of credit, and yes notes being called because of technical default issues, even if  you are current and the bank has been working with you.

At the time I pointed out there were ten banks on the watch list and two have been closed by the FDIC for breaking established FDIC guidelines and liquidity requirements for banks a financial condition, to be allowed to lend and remain in business.

I urged every business owner to review their position and determine if they were in possible jeopardy regarding this situation. I hope you were listening and acted on this matter.

This morning the FDIC released a press release announcing over 110 more banks were added to the watch list and were in danger of being taken over by the FDIC and shut down with its assets being absorbed by other banks or by the FDIC if necessary.

Ten banks being closed is an indicator of tough times for the banking industry and its commercial customers. 110 banks on the watch list is a declaration of war by the FDIC. It is estimated that at least ten to twenty of these will be closed and the list will grow, and closings will expand. Those who are knowledgeable indicate that the worst has yet to occur and the bottom has not yet been reached.

This has happened before in the late 1980′s when over three hundred banks were closed in New England and as many in Texas and elsewhere all over the country. We can learn from this experience, what is likely to happen.

What does this mean to you the small business owner?

Like a rattle snake rattling its warning that it is about to strike, you had best back away. Small business owners with bank loans are being warned, if they understand what’s happening, and must react, or risk getting bit, hard, with venom, poisonous venom.

What should you do?

1. Review your debt position and understand what would be the effect on your business if your lines of credit were pulled back.

2. Asses your financial condition, and determine if you and your collateral remain as adequate collateral in value to cover your indebtedness. If not you have a technical default situation and had best address this prior to the bank dealing with it, as they could simply call your notes.

3. If you are paying interest only, or are in real payment default, or over thirty days late or with a history of late payments, or in tax arrears, or have failed to file a tax return, or are experiencing declining revenues, you are in jeopardy. You must do something about it before the bank decides to do it for you.

What can be done…much, it depends upon your circumstances.

Here is the beauty of the situation, if you handle this correctly it will not only assist you in preventing aggressive moves from the bank that could be disastrous to your business, it will also improve your business operation, financial condition and sales and marketing efforts dramatically so you will not only weather this storm successfully, but will be better for it, much better.

This is called turning potential disaster into success.

This means upgrading your operation so its profitable and within acceptable standards. It also may mean doing a pre-emptive workout on debt issues, before it brings you down.

In short it means you had best do all the things you know you should be doing and must do now or the bank could eat your lunch.

Please understand, the bank would prefer to put you out of business and liquidate your assets and experience significant loss, rather then working with you to assist your turnaround and emergence and get paid more in the long run, so the loan can be successfully serviced.

Why? It makes no sense you ask? Sure it does. Facing the FDIC while carrying too many non-performing loans, be it technical or for non-payment reasons, is worse then their taking  the loss. The FDIC can and will close the bank down, you will only cause a small loss. Get the point?

You are fighting a losing battle and its the wrong battle…clean up and survive( and be much better for it).

4. Do not under any circumstance accept the recommendation of the bank to hire their suggested third party workout guy to assist you in your turnaround. He would be best termed a liquidation guy working for the bank. Its inviting the fox into the hen house.

5. You probably do not have the skill and experience to implement such survival tactics or to even understand whats at risk and what could happen. Get help, perform the necessary adjustments and live to tell about it…don’t, and become a statistic, a bad one.

Call me, I will review your situation and make the necessary recommendations and if desired I will help you implement a survival strategy that will keep you alive and going, maybe even better then before.

Call me 413-549-2966 Norm will arrange a no obligation teleconference.