We are seeing it again – companies whose revenues have dropped because of the Oil & Gas sector are learning painful lessons about having most or all of their financial eggs in the bank basket. I am not a bank basher, and at Patron West we work with them frequently, however banks were never meant to be all things to all people. There are definite trade-offs when obtaining financing from the banks for so-called cheaper rates. Theses trade-offs are stability, certainty and security.
- All bank loans are “Due on Demand”. If your financials and/or credit parameters change outside of acceptable bank ratios, the bank can simply demand repayment of all their loans and give notice of their intention to enforce on their security. And the bank can demand all the money back in less than 90 days. Throw that wrench into your already struggling business and see how hard life becomes.
- All bank loans have “General Security Agreement (aka GSA)” clauses. The GSA you sign (and you have to sign it) gives the bank blanket security over all your equity; receivables, deposits, investments, equipment, real property – the whole works. Not only are they coming after that equipment they financed for you but all the other equity as well.
- Handcuff Your Equity. You may think you have equipment that is free and clear and then decide to use it as security to borrow for a project (after all the bank didn’t place a lien on it) only to find out your bank will not waive or postpone their right to that equity leaving your project dead in the water.
If the bank calls your loans that doesn’t always mean you have a bad business, it may just mean you need a new lender or different approach to your debt. For a business to reduce risk, enable growth or move out of tough spots it has to move outside the bank or at a minimum minimize bank exposure. Equip Finance & Leasing companies are the best means to those objectives.
My team and I would be happy to discuss any diversification or cash flow strategies to help your business succeed. There are always options.