Banks Are Forcing Payment Current Borrowers Into Workout And Liquidation
Banks are now forcing borrowers into workout and liquidation even while they are current on their loan payments. This happened in the late ’80s when we experienced the last banking disaster, when the FDIC had to close over 300 banks in the Northeast because of insolvency and other bad loan practices and it is happening again.
We have recently consulted with a small business borrower NOT in default, who has never has been in default, whose business is, however, running at a loss. There is certainly adequate reason for a bank to force this client into workout and liquidation based on “technical” default, under-performance and because they are demonstrating losses. These are adequate reasons, however, this is such an aggressive action that it seldom if ever occurs… until now. While it’s certainly not yet a trend–this may just be an example of a very aggressive bank–it is happening and everyone must be aware of this possibility.
The obvious question is, what motivation does a bank have to put a currently paying borrower into technical default and liquidate the assets, most assuredly experiencing a huge loss? This is a huge problem, as tens of thousands of businesses are experiencing declining revenues, operating at a loss yet remaining current on their loans. If the banks expand this action, small business owners all over the country are in for a rough ride.
What can be done about this? Do your debt workouts now. What is the point of carrying more debt than the business can support, especially in light of declining revenues that are unlikely to return to yesterday’s high. If you do not work out the excessive debt with debt forgiveness–not modification–you are leaving the door wide open for various forms of disaster to occur. To the list you can now add foreclosure and liquidation by technical default, despite paying current. A small business cannot not even pay its debts and feel secure in the face of declining revenues. The banks want it all.
Again, this may be a single example of one very aggressive bank and not a trend. That is the likelihood of this situation, a single excessive instance of abuse of power. However, the fact that it has happened at all means we must watch this carefully and be aware of the possibility that it will once again become a trend. And of course, do your debt workouts now. Why wait? There is nothing to wait for. Until you rid yourself of excessive debt there will be no rest or security for you. You cannot possibly support the same debt you took out when revenues were significantly greater. Do your debt workouts and then concentrate on growing your business back to profitability. There is no better advice I can possibly give to you.
