Commercial Financing And How To Avoid Dead Banks Walking

recent discussions using the colorful terms “Dead Banks Walking” and “Zombie Banks” contain some humor and have entertainment value, there is also a more serious and practical aspect. For most business finance funding situations, it is not likely to be in the best interest of prudent business owners to be involved with a bank which can be accurately described as a zombie bank or dead bank walking. The impact for commercial financing can be extensive because the descriptions increasingly appear to apply to a significant number of banks. If they are dealing with a dead bank walking, it should be helpful for commercial borrowers to discover their practical options for eliminating zombie banks from their working capital loan review process. For any business owner currently needing a commercial loan or working capital financing, the concept of “Dead Banks Walking” is likely to be an essential part of their decision. With a similar reference point of banks which have already gone broke, this description has been used by several sources recently. This critical but apparently accurate assessment is largely derived from a straightforward net worth approach. Such an analysis recognizes that many banks have substantial assets which are either worthless or at least worth well below the values reflected on their books, with the resulting real current value being less than the current debts of many banks. Based on the evaluation of many observers who have realistically reviewed current asset values, most of the largest banks in the United States been shown to be worth even less than Lehman Brothers (which is already in bankruptcy). Many banks have compounded their public relations nightmare by demonstrating very little common sense in how they make commercial loans and spend money. If a bank is already worthless, it certainly calls into question how businesses and commercial borrowers will benefit by the government throwing money at these “zombie banks” in the first place. The failure of most banks to increase their commercial lending to business owners after receiving government bailout funds has fueled the controversy involving bank survival. Banks who have received bailout funds appear to be determined to hoard the money in order to preserve their own solvency rather than providing commercial finance funding to commercial borrowers. This raises several questions. The emerging consensus is that giving otherwise bankrupt companies (the dead banks walking) more cash does little more than cover the internal operating expenses for the zombie banks. First, should we really believe that a bank should be “saved” simply because it is so large? There appears to be a growing majority of the public which would suggest that these banks have already lost too much good faith to ever recover in response to some arguments that the largest banks cannot be taken over even if they are already insolvent. Second, is there a better way to solve the problem than giving insolvent banks more money? George Soros and others have recently described in detail how other banking systems have successfully handled mortgage financing. Even though residential and commercial real estate loans are thought to be at the heart of the current crisis, there is no real effort underway to revise this approach. Third, how long will it take the government to solve the problem and can business owners afford to wait? Although waiting a few weeks or even several months might be viable for a practical solution which results in needed commercial loans, the current logjam impacting business finance funding shows little evidence of subsiding that quickly. Prudent commercial borrowers should seek alternative sources for essential working capital financing such as business cash advances. In case it is not obvious from the discussion above, dead banks walking and zombie banks can be avoided when seeking new commercial financing.