Posts Tagged ‘debt’

You and Your Bank: A Cautionary Tale

A business heavily dependent on bank financing for its seasonal inventory buildup, borrowed to pay for stock as it was acquired during the year – its normal practice for some time. This past year when the company started to borrow again for inventory buildup, the bank said no, forcing the company – reeling from shock – in to bankruptcy proceeding. Later, the company learned some of the cause for bank’s refusal to furnish its normal inventory financing.

First, management had failed to keep the bank apprised of changing market conditions and heavier competition in the industry.

Second, it had not informed the bank on its detailed plans for coping with the competition, nor of the temporary business losses it had incurred.

Third, the executive who dealt with the bank was arrogant, making evident that he took the bank and line of credit for granted, even in the face of the bank’s currents about the quality of their loan portfolios.