Thursday, June 16, 2005

The Fool - part 2.

So you, the slick financier that you are, have been financing a company for a while and the owner comes to you saying he is in a bit of trouble and can't pay you back on schedule or even worse can't pay you back at all.

You call him all sorts of names and tell him he is a fool (as in "you fool, where is my money!).

So you throw him into forbearance and start running up the fees.

Now the client files for some form of bankruptcy protection and the assets of the company are put of for sale so that the secured creditors can realize a little bit on their money (and then you remember that right behind you, the owner of the company is listed as the next secured creditor).

Seeing as how you, the lender are looking at taking a major haircut, you are willing to listen to an offer from the owner of the business to buy out your position for more than you would have received if the assets went to auction, but still way less than you are owed? Even though the capital is personally guaranteed, are there personal assets to back them (they have a habit of disappearing)

So you, the lender is looking for the best way out of the situation, takes the offer, and walks away licking your wounds. The former borrower walks away smiling, paying you less than you are owed (which means he made the difference) and probably with another lender financing his business. He has also probably cut a deal with his trade suppliers to pay them 100% on the dollar to keep them happy.

He has managed to shake you loose, getting you to eat a pile of your fees and capital.

So who is the fool now?

1 Comments:

Anonymous Anonymous said...

Quick -- Print part 3 please. I figure Josh must get the last laugh. Or perhaps the last scream.

-- WCS

3:15 PM  

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