For tiny business owners, one particular of the most perplexing situations is a realization that there are now primarily “good banks” and “bad banks”. To make matters worse, it is rarely straightforward to distinguish among the good and undesirable ones. For numerous industrial borrowers, enterprise finance consulting has emerged as a valuable tool to establish which banks are nevertheless powerful. But overall, the planet of banking has changed significantly for virtually everybody, and many organization borrowers are angry and confused by a new industrial banking landscape that does not look to be operating quite well.
One of the far more challenging aspects associated with the “good bank and poor bank” analogy is that there are so several competing explanations as to what constitutes a “very good bank”. One particular popular analysis has focused on how a lot banks are truly worth in view of the toxic assets that are so complicated to evaluate. With this evaluation, “negative banks” are generally these with assets worth significantly less than their liabilities and as a result such banks have been referred to as “dead banks walking” or “zombie banks”.
It is fair to say that we have not but encountered a bank which has openly agreed that they deserve to be looked at as a zombie bank because their liabilities exceed their assets. This would be tantamount to describing themselves as a bankrupt bank. If a bank is really deserving of the bankrupt status (and there are a quantity which undoubtedly seem to be in this category), the current banking laws do not permit such a bank to go by means of the kind of bankruptcy approach getting considered by Common Motors and Chrysler.
As an alternative the Federal Deposit Insurance coverage Corporation (FDIC) is supposedly required by law to assume the operation of the bankrupt bank until a new management and ownership arrangement can be established. For a quantity of smaller sized banks, this has in fact occurred for the duration of the previous couple of months. What has been missing so far from this legal bank takeover approach by the FDIC has been the inclusion of larger banks which appear to have issues that are significantly much more critical than the smaller banks which have already been liquidated and transferred to new owners by the FDIC.
The FDIC and other public officials have not produced public why large problem banks have not been liquidated. One clear possibility is the belief that the public failure of a key bank would generate a crisis of self-assurance for practically every other bank whether or not they are financially healthy or not. An equally strong likelihood is that the FDIC just does not currently have adequate assets to cover the failure of a large bank. This viewpoint is supported by the current announcement that the FDIC is in the method of raising costs paid by banks in order to replenish the FDIC insurance coverage funds.
Modest business owners need to have their own evaluation requirements to determine what constitutes either a “bad bank” or “good bank” as it relates to the future economic health of their personal company. Enterprise owners need to contain an assessment that focuses on outcomes as to which banks can supply the required help for their particular business situations involving functioning capital financing and industrial loan wants. While such info would go a lengthy way toward establishing a great bank-bad bank distinction, the banks themselves are not most likely to be beneficial in providing the necessary information to produce this candid evaluation.
There are possibly numerous large bankrupt banks that have not rushed to advise the public that they are in critical difficulty and are nevertheless functioning normally. Similarly we are currently seeing that although most banks proclaim that they are creating little enterprise loans and SBA loans in a normal style, in reality practically all banks have decreased industrial lending substantially for the duration of the past handful of months. Some specialized enterprise lending such as commercial building financing has been frozen altogether in a lot of places.
In addition to the crucial value of identifying “very good banks”, we have published a connected report which describes the delicate issue confronting numerous business owners who may possibly need to fire their banker. Just as there are “very good banks” and “undesirable banks”, there are also “great bankers” and “bad bankers”.
Enterprise finance consulting has emerged as an important tool to help small organization owners operate their way through a complicated industrial banking maze. In the Bernie Madoff fiasco, 1 of the widespread questions asked repeatedly is why investment advisors did not evaluate the Madoff internal operations prior to placing investor funds with Madoff and his Ponzi scheme.
Our candid final point is that the use of a industrial finance consultant should be at least considered by commercial borrowers in their search for new operating capital loans and commercial mortgage financing. Firms now need to have to act far more aggressively than before in order to protect their personal economic interests.