Login or signup
36

Liquid Asset Test
 

Being prepared to discuss your businesses' assets in detail with your banker.
Advertisement

On the theory that there's no such thing as being too prepared for a meeting with a jaded banker, we bring you a timely and thought-provoking exercise from Bob Bowman, president of PlainsBank of Illinois, a $160-million-asset bank in Des Plaines, Ill.

Like any prudent banker, Bowman, who spent six years as a bank examiner, wants to be assured that the loans he makes are loans, not equity investments. So in the course of getting to know prospective borrowers, he poses a rather unsettling question: if they had to convert their business assets into cash right away, how would they do it?

Bowman encourages would-be borrowers to take him through their business, asset by asset. In the case of inventory, he wants to hear what each type is worth -- and who, specifically, might be willing to pay that price. He asks the same about equipment and receivables, and he inquires about customer relationships.

The point of this quiz, Bowman notes, isn't to make people squirm. It's to gain insight into the workings of individual businesses, how the executives think about their businesses, and how the loan might be structured. "Obviously, we want our borrowers to believe in what they're doing, and we want them to succeed," he says. "But if they're going to borrow, they have to show us what happens if things don't work out. We want to know how they'd pay us back."

-- Bruce G. Posner

* * *
Last updated: Jul 1, 1991




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Comment and share features
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: