It’s not working. The SBA cannot even give money away through the banking system. Seller financing is the answer.

We read about it every day, how difficult it is to borrow money in the current market.

The banks have virtually shut down, especially commercial lending. They may as well hang an out of business sign on their door, but should probably ad the following, we are out of business because we do  not believe in our economy…at all. Why else would they refuse to lend?

A very good business man I know, who has already had a small SBA loan and has paid flawlessly over many years. He has an excellent credit score, in the 700′s, his business is and has been profitable and is growing monthly both gross revenue and profitability, he has adequate collateral and he wants to borrow a significant amount to purchase another profitable business heavy with assets to merge into his own. It is a natural deal, perfect in every way. No real risk..

I sent him back to his bank and suggested he seek another SBA guaranteed loan, and with a 90% guaranty, how could he be refused.

He actually was not refused, his bank simply said we are not doing any lending so thanks but no thanks. He went to anther two banks and heard the same story. Not even interested in an application, unmotivated by a 90% guaranty, high collateral value and the other benefits this borrower brings to the deal.

It amazes me, how could they just go out of the lending business even with 90% guarantee from the SBA?

So this deal will not happen, yet, we continue to search for a bank still in the lending business.

What to do he asked me?  I thought very briefly and gave him the only answer available.

It must be done with seller financing and a rap around note. In other words, the seller must keep his financing in place, my buyer will step into the sellers LLC and pay the note as well as an additional note to the seller for his profit. The seller is unhappy as he wanted a big hit and to be out of the debt obligation, but it is what it is and if this buyer cannot finance then no buyer can. Thus the seller must realize if he wants to sell he must be the bank.

This is the way we must do it in today’s market.

So yes money is not available from the lenders, but it may be available from the seller. Seller financing the only remaining avenue. Explore this approach, educate the seller and close a good deal. It is the only way in today’s shut down credit market.

Obama doing too much? A perfect example of how well flat management works.

Many are criticizing Obama for doing too much. Starting to many programs and ‘biting off more then he can chew’.

Not so I say. While I am not endorsing his programs I am very pleased with his       ability to manage a diverse, complicated and numerous list of agenda items and he therefore is a perfect example of  implementing an effective flat management approach and  we see its benefits. he is accomplishing much in a very short time.

He states the goals he wishes to achieve, empowers his cabinet members to do what it takes to reach his objectives and  to also figure out how to get there, what the strategy may be and then to implement effectively.

Of course Obama inspects their process, reviews their findings and affirms their strategies, further checking on achievement.

He further accepts final responsibility and the results be them good or bad and pays respect to the managers whose efforts the program represents, giving credit were credit is due.

The man is an excellent flat manager and is demonstrating how much more can be done if he removes himself from every possible decision and micro managing every effort and trusts his managers to do their job.

That is why he has cabinet level appointees handling major areas of his agenda and authorizes them to create programs that will reach his goals.

That is flat management. Without it he would be able to do far less and would buried by the enormousness of the tasks.

Take a page out of his book, manage flatly, get far more done take responsibility for the failures and applaud the managers giving them credit for the successes they achieved. Inspect, review and project but let your managers carry the heavy weight. Give them discretionary decision making authority to reach your goals and hold them accountable for their achieving the desired end. Inspect them frequently along the way and free them to do what they have to do, encourage them if they have failures and errors and accept the responsibility for defeat while rewarding them for success.

Thats flat management …if Obama can do it, you can too.

Now. 

flat management, its the way to go.

Good job Obama, now hopefully his goals are clearly defined and the right ones, that remains to be seen, but his management style is excellent and will afford him the opportunity to get far more done then a more pyramidal organizational style and format.

The banks are doing it again, collection through intimidation, now they are trying to deny you your right to professional representation.

Aha, the credit card industry, leasing companies and some banks have found a new way to abuse borrowers in default. It’s a  very formidable issue as strategies to thwart this abuse are cumbersome and difficult and often prove ineffective..

Here it is.

Knowing that the borrower is easier to intimidate into submission and into making payments they cannot afford, they staunchly refuse to talk to third party representatives saying they will only talk to the borrower.

This is patently absurd. Every borrower is entitled to representation, this is a basic inalienable right. Every borrower is entitled to appoint anyone with a power of attorney with the authority to deal with the bank. Denying  the borrowers right to a duly appointed representative is a breach of their rights and a flagrant abuse of their own fiduciary responsibility to the borrower. It is done only to remove professional representation from the borrower which the bank believes will then result in a better collection process for he bank or credit card company.

That is ridiculous.

You are absolutely entitled to professional representation and any effort to remove this option is done for the sole purpose of intimidation and removing your best opportunity for a responsible result. The bank or credit card company strategy being to block professional representation and unfairly take advantage of you.

I have retained counsel to produce a legal memorandum on the subject which we will use to remove this barrier from us when it pops up. It is a small minority of offenders but I see it growing as it works for them, so they think.

The next problem is the huge bureaucracy of the companies we deal with. Frequently they are so large it is extremely difficult to reach the appropriate decision maker and since this is ‘policy’ created at high levels, no one is authorized to make changes… another silly excuse for bad behavior. They have them all.

I recommend to my clients that when the bank calls them after you have given power of attorney to a representative they simply state they are being represented and please talk to our representative. This will eventually work, although it is still cumbersome as the chain of command is very long and stubborn, they frankly do not care if you end in default and then go to the workout department . They are there to intimidate you into doing what you cannot  and should not do.

The Workout Dept. tends to be closer to the law firms as it is aprt of their strategy also, to use the legal war club to collect,  so this strategy will work out sooner then later with them as they will seek legal opinion and they tend to capitulate and consent to represntation.

It is indeed unfortunate that the creditors feel that it remains in their best interest to rely on intimidation tactics rather then quality representation for a productive conclusion. They still do not get it, that this type of predator action is contrary to everyone’s best interest and may have short term positive results for their collections but long term negative results for all concerned as all that will happen is an ill conceived momentary spike in collections and a faster burn out with a poorerlong term  resolution. It will simply force people to bankruptcy as opposed to workout as their only alternative which is far more expensive and will yield far less then a legitimate workout.

When will they understand that cooperation with their clients will only result in better conclusions. If we all work together imeasurable ammounts of success will be achieved…for all involved.  When will they probably figure this out… probably never.

Take the judgement, whats the difference

I am frequently challenged by the problem of my clients being sued by the bank or a vendor, and their desire to enter an answer and challenge the motion for judgment. They somehow feel if they do  not answer they are reducing their position and harming themselves.

They desperately want to defend themselves and avoid the judgment. They are concerned by tits effect on their credit and somehow they believe that this will cause them harm in some way.

First, lets get down to the basics. Chances are very good that you borrowed the money, spent it and now cannot pay it back  as agreed. Probably the bank did nothing wrong. Chances are there is no offense nor a legal defense. So any answer would be either made up, irrelevant or frivolous and will be dismissed with a directed verdict for the plaintiff bank and all that would have happened would be additional expense and a waste of time with no practical advantage occurring.

So why do it?

In fact I frequently offer the bank an agreed judgment, explaining we are willing to cooperate fully, wanting to reduce unnecessary expenses and waste and would prefer to be working on the workout as opposed to a frivolous defense that postpone the inevitable and wastes money.

It is not a cop out but is a distinct strategy. The bank will get the judgement anyway, so what could possibly be the net gain of answering and defending.

Your lawyer may answer and counterclaim, I would cooperate and head towards workout, where cooperation on both sides pays off.

If you really want to file an answer and have your lawyer do it, that will also have the effect of shutting of any direct communication with the bank as they will then insist on lawyer to lawyer discussion as a suit has been filed and answered, That destroys any meaningful workout discussion between the primary parties, you and the bank. Definitely a bad idea. It also costs money and again with what possible gain in mind?

If you answer it yourself then you are really wasting your time and going to annoy the bank even further as it is a colossal waste of time money and effort.

Acknowledge you failed to pay, which is true, acknowledge you do not have the resources to comply with your note and get to the workout where the issue can best be resolved for both sides. Forget trying to dabble in the legal process. You have no case, more then likely…so why pretend and waste time and money. It defeats the real goal, a valuable workout.

It is not irresponsible, it is a productive strategy.

What motivates your banker ? Embarrassment and fear of losing his job!!!!!

An interesting and important question, what motivates your banker?

I would think a combination of risk assessment,  profit projections and loss mitigation.  Sounds right…and when dealing with a workout, while losses are to be avoided as best as possible, it is certainly an expected   part of the program.

It is my belief that a good banker should be unemotional and focused on maximizing profit and minimizing loss, without ego.

Ok so I was wrong, but really this wrong???

Here is how one recent conversation went with  senior bank officer in the workout department…with a low bid of less then $150,000 for the assets of a business that had borrowed $1.7 million. The buyer had the assets appraised and that was the basis for the offer, appraised value.

The banker was aghast at the offer  and laughingly said he would not accept this offer under any circumstances. In fact ‘he would be embarrassed to submit it’, and that ‘it may cost him his job if he did.’

I queried, why he could possibly feel this way and act in such a manor as the assets were appraised by a legitimate appraiser who worked in liquidations, the business was loosing money and thus only worth the value of its assets, which was being offered. I further reminded him that the inventory had a three day life span so it is worthless in foreclosure, that the business operated out of a lease and thus was not valuable collateral and that necessary licenses required to operate the business would extinguish upon sale or transfer and new ones were not available until 2010, which would have he effect of reducing the revenue by 50% thus making the transfer all but impossible to anyone but the proposed buyer who was  an officer of the current corporation and could manage a license continuation thus making his purchase the only one possible.

But the asset manager declared his position as unmovable, he would not submit the offer to the SBA nor take it seriously under any circumstance, despite our appraisal and the license issue.

I was shocked. I challenged him on the general accounting principle that a business that loses money is only  worth the value of its assets, and thus the offer while much lower then the loan  was a viable offer that needed to be submitted and considered.

He refuses and continues to market the business through brokers and networking. He said he would take another month to see what he could find.

I reminded him of his fiduciary obligation to the borrower, and that his refusal to consider or submit this purchase offer because he was ‘afraid he would lose his SBA guaranty’ was a breach of his fiduciary responsibility when in fact the offer was at appraised value, nothing any of us could control.

The man was motivated by his embarrassment by the low offer in the face of such a large loan and fear of losing his job because he submitted such a low offer. He would rather take nothing then our low offer from a bonafide bidder.

What a predicament. How unprofessional, yet a real barrier to my clients position.

What to do now? I have a few ideas, I will let you know how it works out and what happens. What is imporant is t recognize that it is important to consider what in fact is motivating your bank officer in a workout, once determined it may be easier to deal with his issues.