Hey DF,

More an more I am seeing companies that are having issues with their current bank. Most are companies doing north of $50Mil in revenue and have ABL facilities in place that include AR, Inventory, and M&E.
Many of the deals I have seen recently are a direct result of their bank asking them to leave or the owner knows it's coming soon and they are being pro-active.
The challenge with some of these deals is the balance sheet and the way the bank financed the deal. Banks for the last 5 years have been pretty aggressive with cost, flexibility, advance rates, and going after borderline deals all in an effort to win deals as it has been ultra competitive. The problem with being to aggressive on structure is getting a borrowing base out of formula way to quickly by being liberal with advance rates on inventory and M&E. Being aggressive is OK so long as nothing bad happens, but when it does....you are in Hotel California. You can check into the deal, but you can never leave.

All to often the bank reporting requirements are pretty loose. Monthly borrowing base certificates and annual financial reporting. That being said....If something bad happens in May, the bank won't know until later in the year, and they were out of a normal formula in January! OOPS!

Now...imagine if the company stacked a few advances on top of the mess described above. YIKES!

Lessons learned: Stick to your formulas. You don't need to close every deal. Never....never deviate from structure!