Commercial Bankers: For Maximum Recovery, Exit Deteriorating Deals Quickly
When banks look at a portfolio company, see it deteriorating and know it’s going to be asked out, the sooner, the better. Don’t prolong the inevitable, get in front of it. For maximum recovery, banks need to get out!
When bankers provide extensions and the company deteriorates further, there’s less availability. It’s harder for a new lender to come in, and the bank might not be able to get out in full.
The borrower will always ask for more time and try to assure the banker that, “things are getting better.” But bankers need to look at the trends and not rely on the borrower’s pitch to stay. Ask for hard proof (orders) that sales are going up. Projections based on, “we’ve been told” are not good enough.
And over-staying the bank’s welcome is not good for the borrower either. The sooner a bank exit is made, the sooner the business will get the financing it needs from an alternative lender who will help the business get back to bankability.
So where does PPP money fit into this? It depends on the bank’s view. If a company had losses, PPP money can turn those losses into profit on its balance sheet. Does the bank see it that way or is it still seeing the underlying loss? And most importantly, has the company fixed the underlying issue that led to the losses in the first place?
PPP money was a great temporary “fix” but when it’s gone, will the business still need “fixing?”
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.