I didn’t know that about banks

I recently got a call from a good friend who also happens to be a former customer. We’ve had an amicable professional relationship over fifteen years that includes an occasional round of golf and dinner out.

“Ken,” he said after a quick round of howdy, “I need a little advice.” And then quickly added, “Fact is, I need a lot of advice”.

“Fire away.”

“Well, to begin with, I should ‘a listened to my sales rep. Remember that 5-Axis mill I bought about two years ago?”

“I do indeed. Nice piece. Wish I still had the territory”, I replied. And it wasn’t just being polite. I recall that machine went well over two hundred grand. “So, what’s the problem?”

“The sales guy suggested I lease the machine. But I’d just switched our business banking to a local bank. They’re really nice folks and they promised to help me with tax stuff, a line of credit, even an SBA loan if I need it. Even employee checking and savings accounts at favorable rates.”

“Sounds sweet,” I said, still not sure where this was going.

“That’s what I thought too. But yesterday a guy I’ve never worked with at the bank came by.” I could hear a tone of misgiving creep into his voice. “He says the bank is terminating the loan and I have to pay off the machine in full or they’re taking it. Can they do that?

“I’m not a lawyer,” I replied. “But I recall part of a seminar on equipment leasing that covered the situation you’re in and they said banks can actually call a loan if they choose to. Apparently standard bank contracts include a Call Provision, which is apparently not unusual for banks.

“The banker told me it’s standard procedure for banks to include what he referred to as a Call Provision in their contracts and they weren’t doing anything unusual as a bank. But we never missed a payment. We’re just really getting up to speed on 5-axis work and they want almost what I paid for the machine.”

Not quite sure how to respond, I didn’t say anything for a sec.

“And the bank loan took forever,” my friend continued. “Not to mention the paperwork. And then to top it off the month they took nitpicking the loan application put us behind on delivery of the machine. That month cost us the big 5-Axis parts order, which is what we bought the machine for in the first place. It’s taken most of this time to get another decent 5-Axis job.”

“But you said you made all the payments on time, right?” I asked.

There was a long sigh at the other end.

“Yeah,” he said finally. “The bank guy explained that our company had slipped a bit financially since we got the loan”.

“How do they know your financial status?”

“Part of the equipment loan deal with the bank is that we have to provide quarterly financial statements’.

“Really…” I muttered “I didn’t know that about banks.”

“Yep,” he replied. “Apparently the bank isn’t comfortable with our financial outlook. And the funny thing is, that big parts order we lost because of all the delays more-or-less put us in this predicament.”

“What about your line of credit? Can’t you draw against that?”

“The loan for the 5-Axis was used against us in that department too.”

“How so?” I asked.

“The bank guy said all banks look at the bottom line when it comes to their financial exposure and in our case the value of the machine seriously reduced our credit line, which also wasn’t clearly explained at the time. I’m maxed out with my personal finances because I took a second on our home to cover operating expenses that normally I’d have handled with the business line of credit.”

“Well,” I said after a thoughtful pause. “Let me call a buddy in the equipment leasing business. A reputable equipment leasing company may be able to help you work through this situation, especially with a quality machine tool that’s just two years old.”

“Thanks,” my friend replied. I could hear a lift in his spirits as he added, “funny thing, this is coming to a head just when we’re finally getting busy. Maybe I can see the light at the end of the tunnel.”

Now the ball was in my court, but I was pretty confident because I remembered several tough situations where my friends at the equipment leasing company saved the day.

It’s been several weeks since I put out the S.O.S. and things are looking up. The leasing company worked out a deal so the bank loan gets paid off and converted to a capital lease with a $1.00 buy-out. Since the leasing company understands the business of owning and running a machine shop better than most banks the paperwork was much simpler too. And because equipment leasing companies are different than banks they don’t need to look over the customer’s shoulder all the time. And no Call Provision buried in the fine print like that bank loan contract.

The best part is the machine stays where it is making 5-Axis parts and 5-Axis dollars. And that light at the end of the tunnel my old friend mentioned; I’d like to think it’s daylight and a breath of fresh air coming his way.

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