"We're not a welfare agency," our new banker -- call him Tony -- lectures me over the speakerphone in MEECO's old mahogany-shelved library. I stare at the phone. Not only has he chopped our line of credit in half but he stuck us in the bank's workout group, the last stage before bankruptcy, a descent into hell.
It made no sense. Over the 14 years since we turned my late father's business around, we'd been consistently profitable and never missed a loan payment. We hadn't touched our line of credit in well over a year. Now we're projecting a small loss, less than 1% of sales, and he puts us in the workout group? In my days as a business journalist, I wrote an article about how workout bankers come in, shove the owner aside, and take over the business. Not here. Not without a fight.
"Couldn't you just give us until the end of the fiscal year? It's only five months away," I ask. It's March, 1999. In our first half, we'd been hit with a triple whammy. The Asian financial crisis slammed our biggest territory, Japan. Also, semiconductor makers buy our analytical equipment for quality control. A downturn in that cyclical industry had depressed our biggest market. And, to make matters worse, we were still reeling from an aborted sale of the company that decimated our senior management and stalled our sales momentum. If we ever needed an understanding bank, it's now.
MISMATCH. Ironically, we joined our bank in 1991 during the last semiconductor-industry downturn. At the time, they had faith in our potential -- which was rewarded when the market recovered. That was eight years and eight bankers ago. Still, the relationship seemed positive. Most years we got an injection of much-needed capital.
Yet I sensed there might be a mismatch at my initial meeting with Tony. After some brief chitchat, he suddenly asked my religion. Flustered, I mumbled something noncommittal. All the same, he came through with a nice, big loan and doubled our line of credit. He's O.K., I tried to convince myself.
A few months later, I contacted Tony to let him know we might face a loss this year. "You don't want to give your banker any surprises," counseled Gary Porter, one of my board members and president of Porter Instruments, another Philadelphia-area company. "He may have some helpful ideas." Gary, who is also the second-generation owner of an instrument company, is like a big brother to me. His company is many times larger than MEECO, though, and in banking, size matters.
"I don't believe it," Gary fumes when I tell him the latest. "It's only a projection. Would they make loans based solely on projections? You've got to get a hold of someone over him. Take it up a level or two."
"HE'S THE BEST." Too late, I realize that I had neglected to cultivate my bank. My hands cold and sweaty, I start calling. With all the mergers and reorganizations, most of the officers whose cards I collected over the years are long gone. I contact Tony's predecessor, who reassures me: "Tony's the best credit person in the department." A senior banker I once knew is poised to transfer out of state. But he and Tony's boss, a woman I've never met, agree to come out to the plant.
Jim, MEECO's executive vice-president for new business development, and I work on our presentations for days, rehearsing our lines and creating PowerPoint graphics and handouts that make the case for MEECO's imminent turnaround. He's a 30-year instrument-industry veteran. We're ready when Tony's boss and the senior banker -- who inexplicably hugs me -- file in. With them is my new banker from the workout group. Not a good sign.
Ever hopeful, I lay out the big picture with charts, graphs, and trend lines showing that over the long term, we've grown solidly -- despite the occasional blip. Our second half is historically strong, I point out. Our new products are just hitting the market, and the semiconductor industry is perking up in Taiwan and Korea. My remaining employees, a stalwart band of 25, have taken pay cuts, with managers taking the biggest hit.
Jim, a big, gray-haired man with a cherubic face, bounds about animatedly, attempting to sell them on the prospects of our eight new products, which we've arrayed around the library. The bankers listen attentively, without reacting. No questions.
"YOU'LL KNOW WHEN." Now it's their turn. Tony's boss patiently explains how banking is more and more regulated. Once a company is designated "at-risk," the paperwork and oversight take too much time for the relationship manager, who's primarily a salesman.
"Just a couple of years ago, we were one of your star performers. Now you're dumping us into the workout group," I say, trying not to get too emotional.
"I wish you wouldn't call it that," retorts the workout banker. "It's the Commercial Recovery Center."
"Everybody knows what it is," I counter. "I'd like to know what the criteria is for us to get out."
Tony's boss leans forward: "You'll know when you're ready," she says.
My self worth and MEECO's net worth had long since become inextricably linked. That night, I feel the stigma of failure with full force.
The next day is our weekly Open Book Meeting, when I share the numbers with employees. "When my father was diagnosed with cancer, the doctors gave him three months to live," I tell them. I stand before them at the back of the plant. Some lean against a bookcase full of parts catalogs. The rest sit in mismatched chairs around a big square wooden table. "But he held on for three years. He waited to see MEECO turn a profit. He wanted to know that MEECO would be all right. Then -- and only then -- was he ready to let go."
TURNAROUND. The employees listen intently. Terry, who worked for my father, wipes her eyes with her hand. "Ever since then, I've felt a sacred duty to make a profit every year. And every year until now we have. But the bank just threw us into the workout group because we thought we might have a loss. Well, you know what, we're gonna show them that they're wrong!"
That was a year ago. No doubt, we could have used additional support from the bank. And filing our ever-improving monthly reports was a chore. But life in the workout group was not the horror show I feared. I never saw the workout banker after that first meeting. When we managed to eke out a small profit by fiscal yearend, I give him a call. "Don't quote me on this, but we jumped the gun," he says.
"So, when do we get out?" I ask. The onus of being in the workout group was hindering our ability to refinance and to attract outside investment. It would take at least six months to unravel the bureaucratic chains. But I know I'm ready to leave the workout group.
With that, I decide to switch banks. I always thought we were better off with a large, money-center bank since we need international letters of credit and such. These days, however, many smaller, local banks can support growing businesses.
Soon, two leading local banks start vying for our favor. Both offer attractive terms, even funds to develop our new laser-based technology. "I never heard of a bank doing that," says Gary, which makes me happy. A vice-president at one of the banks calls me daily about our application. Our receptionist, Christy, whose observations I value, says he's really nice. In March, I sign with his bank for $1.2 million in financing, most of it at 8.25%, a larger loan at better terms than we had before. My board is impressed. It looks like we're set -- for now.
Copyright 2000, Bloomberg L.P.
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