In the latest Batman movie, one of the villains is “Two Face” - a good guy turned bad guy who determines the fate of his victims by tossing a coin.
And some bankers today seem to be following his lead.
Bankers can be usefully divided into two categories - those in "sales", and those in “credit”. In the credit bubble environment, "sales" ruled and "credit" did what it was told. But now, what I call the "pendulum of bank benevolence" has swung from "profligacy" to "bastardry", and the credit people are back in the ascendancy.
When "sales" ruled, small business owners were seduced by their bankers to source all of their funding requirements with their bank, with offers of very low pricing, and the empty logic of “one stop shopping”. But now that "credit" is back in town, many SME's are finding themselves hog-tied and unable to restructure their business finances without refinancing every dollar of debt the business has.
An example will illustrate what I am talking about. I was asked recently to provide a debtor finance facility to an engineering business. They needed my services because they recently shifted premises. As always happens when a business shifts, they had underestimated the costs in terms of both expenses and lost sales through down time. Their bank (lets call them Big Bank) loaned the business nearly $1M to buy the new premises only months ago - the old premises had been rented. Yet Big Bank turned them down when they asked for an overdraft extension, and so their finance broker brought the matter to me.
I asked Big Bank to release the business's debtors from the debenture charge they (Big Bank) held over the business. The Relationship Manager agreed to help, but then, even though the debt was easily covered by mortgages held over the premises and two directors homes, he was over-ruled by “credit” (you can almost hear “Two Face” flipping his coin, can't you?)
The only option available to this client now is to refinance everything - the overdraft, the business loan, the equipment finance, the property loan on the new commercial premises, and the two directors home loans.
In this example, the client effectively has four classes of assets: Commercial property (the premises); personal property (the directors homes); the plant and equipment, and; the debtors of the business. I believe that each class of asset should be financed with different lenders – preferably specialists in those asset classes. That way, one asset class can be refinanced without the need of refinancing the other assets.
This client is now at the mercy of the decision processes of the bank, which frankly seem no more sophisticated than that of “Two Face”, with similarly dire consequences for the business.
The Cash Flow Ninjas
