The Importance of Timing in Client Exits

In banking, the key to recovering outstanding debt when exiting a client relationship is timing. The earlier a bank recognizes signs of financial distress and acts, the better the chances of getting paid out in full.

When a business experiences losses, it’s often due to declining revenues. This is a major red flag for lenders, especially if the borrower can’t clearly explain how they plan to turn things around. Without a solid recovery plan, the risk for the bank increases as the business’s situation worsens.

The longer the bank waits to act, the more the business may deteriorate:

• Payables stretch out
• Inventory quality declines and value decreases
• Equipment appraisals will be lower if there’s no money to keep it in good shape
• Tax liabilities grow as the business falls behind on taxes

All of this begs the question: why wait to exit a marginal client? Referring your borrower to an alternative lending source, like an asset-based lender, can improve the bank’s chances of recovering its loan.

A timely referral gives the borrower the capital needed to stabilize while allowing the bank to exit on better terms. By recognizing distress early and acting swiftly, banks can minimize the financial and reputational risks of prolonged exposure to marginal clients.

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 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.

If you know of, or are, a business in need of non-traditional financing, contact Mark Hafner at 800.742.0733 or mhafner@celticcapital.com, or visit us at www.celticcapital.com.