Finding Good Banks and Avoiding Bad Banks
Business Finance Options and Small Business Consulting
For small business owners, one of the most perplexing situations is a realization that there are now essentially "good banks" and "bad banks". To make matters worse, it is rarely easy to distinguish between the good and bad ones. For many commercial borrowers, small business consulting has emerged as a helpful tool to determine which banks are still effective. But overall, the world of banking has changed dramatically for almost everyone, and many business borrowers are angry and confused by a new commercial banking landscape that does not seem to be working very well.
In addition to the critical importance of identifying "good banks", we have published a related report which describes the delicate issue confronting many business owners who might need to fire their banker. Just as there are "good banks" and "bad banks", there are also "good bankers" and "bad bankers". To review our report, follow the link entitled "Firing Your Banker" in the right-hand column of The Working Capital Journal.
One of the more difficult aspects associated with the "bad bank and good bank" analogy is that there are so many competing explanations as to what constitutes a "bad 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. In this perspective, "bad banks" are those whose assets are estimated to be worth less than their liabilities and as a result have been referred to as "dead banks walking" and "zombie banks".
It is fair to say that we have not yet 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 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 Chrysler and General Motors.
Instead the Federal Deposit Insurance 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 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 reason that the FDIC has not liquidated larger problematic banks has not been made public. One obvious possibility is the belief that the public failure of a major bank would create a crisis of confidence for virtually every other bank whether they are financially healthy or not. An equally strong likelihood is that the FDIC simply does not currently have sufficient assets to cover the failure of a big bank. This viewpoint is supported by the recent announcement that the FDIC is in the process of raising fees paid by banks in order to replenish the FDIC insurance funds.
Small business owners need their own evaluation standards to determine what constitutes either a "bad bank" or "good bank" as it relates to the future financial health of their own business. In most cases, this should include a results-oriented assessment of which banks can provide the needed commercial loan and working capital help for their specific business circumstances. 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.
As noted above, it might be possible that there are several bankrupt banks still functioning normally because they have not rushed to advise the public that they are in serious trouble. 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.
Our candid final point is that the use of specialized business consulting and a business finance consultant should be considered by commercial borrowers in their search for new working capital funding and commercial real estate financing. Businesses should now act more aggressively than might have been necessary in recent years in order to protect their own financial interests. In evaluating the Bernie Madoff fiasco, one of the common questions raised is why investment advisors repeatedly failed to ask basic questions prior to placing investor funds with Madoff. Commercial finance consulting has emerged as an important tool to help small business owners work their way through a complicated commercial banking maze and avoid the kind of regrets exposed by the Madoff scandal when preliminary questions were not asked at the appropriate time.
Contact Information
AEX Commercial Financing Group
Stephen Bush
Chief Executive Officer
Phone: (937) 780-4030
Email: BUSH@AEXLLC.COM
PO Box 353, Leesburg OH 45135-0353 USA
