How would YOUR BUSINESS survive if YOUR BANK failed?

By: Napier-Munroe Limited  12/09/2014
Keywords: Trade finance, Asset Based Lending, Turnaround Finance

If you own and manage a business (no matter how large or small) have you ever thought what would happen to it if your Bank failed? It may seem a rather strange question to pose; in business, you would routinely undertake credit checks on your suppliers but when was the last time that you checked the financial standing of your Bank? Is it “liquid?” Is it “solvent?” If not, what would you do? This is particularly important where your business is, generally speaking, itself financially strong with minimal borrowings. If your Bank subsequently “failed”, could the Government of the day realistically afford to “bail it (and its competitors) out?” If not, what would be the impact upon your business? Would it too fail? Whilst the above are rhetorical questions it is worth pondering for a moment as to what would be your course of action? There WILL be another global financial crisis (maybe sooner rather than later) – whether you wish to explain this away by the “business cycle” or the incompetence or otherwise of the policy makers/Government, regulators and financial institutions themselves etc.? When the next economic slump or recession occurs what defensive measures have you taken or can you take? At a “practical” level, depending upon your cash position, you could consider: “paying down”/reducing your borrowings/debt; dispose of any none “core” business assets; build up your business’s reserves; and diversify your borrowings via several financially stronger Banks and other niche/specialist lenders/financiers. From a strategic point of view look for opportunities to collaborate with players’ in growing/emerging or “frontier” markets possibly? In respect of policymakers the problem of national debts is far too big for any single Government to resolve themselves; it may be a question of swallowing your pride, arranging a global consensus in order to “cancel” and/or reduce the absolute amount of “global” debt (including for emerging nations and/or “frontier markets.”) Only then can the “real” global economy start to grow once again, and “mom and pop” businesses grow. If you fail to act then accept the consequences – my personal opinion is that only those businesses and countries with “hard”/tangible assets (such as gold bullion) and low levels of borrowings will actually survive? NOTES TO EDITOR(S): Kip S. Johal is a graduate of one of Britain’s leading Banking Schools’ (U.C.N.W., Bangor S.A.B.E.), a former Adviser with Hill Samuel Investment Services Limited; currently a Freelance Commercial Finance Broker and “Practical” Management Consultant (with Napier-Munroe Limited, [email protected], 0121 502 2737), specializing in very high value loans; and writer with various published articles on Business and Finance. Sources: http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/ http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/ http://www.economicshelp.org/blog/2996/economics/list-of-gross-external-debt-by-country/ http://www.debtbombshell.com/forecasting-national-debt.htm http://www.res.org.uk/view/article5jan12Correspondence.html http://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/ http://www.ukpublicspending.co.uk/uk_national_debt_chart.html © K.S. Johal, 2014 Under the Berne Convention All Rights Reserved No Reproduction without Permission

Keywords: Asset Based Lending, Bank Overdrafts, Commodity Finance, Confidential Invoice Discounting, Documentary Letters Of Credit, import finance, Inventory Finance, Selective Invoice Finance, Stock Finance, Trade finance, Turnaround Finance