The world of banking has recently changed dramatically for most small business owners. Many commercial borrowers are angry as well as confused by the new business banking landscape. One of the most perplexing situations is a realization that there are now essentially "good banks" and "bad banks". It is not always obvious how to distinguish between the good ones and bad ones, so business finance consulting has emerged as a helpful tool for many businesses.
One of the more difficult aspects associated with the "good bank and bad bank" analogy is that there are so many competing explanations as to what constitutes a "good bank". One popular analysis has focused on how much banks are really worth in view of the toxic assets that are so complicated to evaluate. With this analysis, "bad banks" are typically those with assets worth less than their liabilities and as a result such banks have been referred to as "dead banks walking" or "zombie banks".
Not surprisingly we have not yet experienced a bank which has openly agreed that their liabilities exceed their assets and therefore they should be considered to be a zombie bank. This would be tantamount to describing themselves as a bankrupt bank. If a bank is truly deserving of the bankrupt status (and there are a number which certainly appear to be in this category), the current banking laws do not permit such a bank to go through the kind of bankruptcy process being considered by General Motors and Chrysler.
The FDIC (Federal Deposit Insurance Corporation) is ostensibly required by law to immediately assume the operation of any bankrupt bank until they can establish new ownership and management. For a number of smaller banks, this has in fact occurred during the past few 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 problems that are much more serious 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 made public why large problem banks have not been liquidated. It is certainly possible that the FDIC and key public officials feel that the public failure of a major bank would create a crisis of confidence for all banks regardless of their financial health. An equally strong likelihood is that the FDIC simply does not currently have sufficient assets to cover the failure of a big bank. The fact that the FDIC is currently in the process of raising fees paid by banks in order to replenish the FDIC insurance funds would appear to support this viewpoint.
To realistically protect the future financial health of their own business, small business owners need their own evaluation standards to determine what constitutes either a "good bank" or "bad bank". Business owners should include an assessment that focuses on results as to which banks can provide the needed help for their specific business circumstances involving working capital financing and commercial loan needs. While such information would go a long way toward establishing a good bank-bad bank distinction, the banks themselves are not likely to be helpful in providing the needed data to produce this candid evaluation.
There are possibly several large bankrupt banks that have not rushed to advise the public that they are in serious trouble and are still functioning normally. Similarly we are already seeing that while most banks proclaim that they are making small business loans and SBA loans in a normal fashion, in reality virtually all banks have reduced commercial lending dramatically during the past few months. Some specialized business lending such as commercial construction financing has been frozen altogether in many areas.
We have recently published a related report which describes the delicate issue confronting many business owners who might need to fire their banker in addition to identifying "good banks". There are "good bankers" and "bad bankers" just as we have noted that there are "good banks" and "bad banks".
Business finance consulting has emerged as an important tool to help small business owners work their way through a complicated commercial banking maze. One of the common questions asked in the Bernie Madoff fiasco concerns the repeated failure of investment advisors to analyze internal operations prior to placing investor funds with the Ponzi scheme constructed by Madoff over a period of many years.
Our candid final point is that the use of a commercial finance consultant should be at least considered by commercial borrowers in their search for new working capital loans and commercial mortgage financing. Businesses now need to act more aggressively than before in order to protect their own financial interests.
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Stephen Bush is a
working capital loan expert who has provided candid advice to business owners for 30 years => AEX Commercial Loans and
Business Finance Programs
