We’re Slow, But We’re Expensive!
Why do bankers have a bad rep? Sometimes it’s their own fault.
A south Florida-based distribution company found itself in the position of having excess inventory at December 31, 2008. Their products have a long shelf life so the company did not see it as a major problem. They knew that within 60 days inventories would probably be back to normal levels.
During their annual review the company’s auditors identified that the inventory levels caused a breach of one of their bank’s loan covenants. The key point is that the bank didn’t identify the problem to the company. Instead, it was the company that told the bank of the breach when it asked for a letter for a temporary release of the covenant (the request was made so that the audit could be issued without qualifications).
The bank sat on the request for approximately six months. They finally agreed to issue the letter in exchange for a fee of $5,000 even though inventories had been within the covenant’s guidelines for many months.
It was only after the fee had been paid and the letter issued that the audit could be finalized. Caveat Emptor.
Howard Schulman
Transworld Business Brokers, LLC
Business Sales, Mergers, Acquisitions & Financings
754 224 3137 — Direct Line
954 449 7899 — Fax
howard@tworld.com