DANGER: Stacking Short Term Working Capital Loans

Jan. 08, 2016 2:54 PM ET
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Internet, Long/Short Equity, Portfolio Strategy, Banks

Contributor Since 2009

Christopher "Kit" Menkin is of editor LeasingNews.org (http://www.leasingnews.org/), an internet trade publication for the finance/leasing industry. He has 46 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on several company board of directors. He was a syndicated business columnist in news from Silicon Valley, California, for 12 commercial newspapers in the 1970's and early 1980's. Prior to getting into the financial business, he was a West Coast News Producer for ABC-TV News, Managing Editor KGO-TV News, San Francisco, California, and news editor at KFRC News, San Francisco, California. His three times a week news edition posted at www.leasingnews.org is read by over 175,000 in the trade and by related entities each month.

Recently I wrote an article about FinTech companies and whether or not they would be the next big bust. It seems every day there is a new one sprouting up and attracting a lot of business and a lot of investors. I still believe these are dangerous waters as they have made it too easy for companies to get loans. These are the same companies that banks turn away and yet, now banks are buying these portfolios. Sound familiar?

Lately, we have received applications from companies looking to refinance equipment or existing debt. These types of applications are nothing new to us, except, now the customers are trying to pay of short term working capital loans that have been stacked on them. What I mean by this is these customers have taken 2, 3, 4, 5, 6 and even 7 short term working capital loans at the same time from different companies. And guess what? They can't pay them.

Some of these short term working capital lenders have even given a little more to customers, so they could bring the accounts current. Amazing. I call that spending good money for bad. It also helps their portfolios look a little cleaner I imagine.

I do think that if used correctly, these working capital loans can help companies when all else fails. Unfortunately, it is obvious that companies are taking advantage of how easy it is to qualify for these loans and the fact that very little reporting or checking is done by these FinTech companies that customers are now stacked with several loans.

Every customer that has applied to try and pay these off I believe had good intentions, but a small hiccup in their business has now made it impossible to pay these lenders their daily draw. And, since all these lenders file blanket liens on these customers it is nearly impossible to use their collateral to get them out of debt.

I think should be more reporting and control from these types of lenders so customers can not stack these types of loans. It will help everyone.

Previous Article:
Is Fintech the Next Big Bust?

Henry Grace
US Financial Companies

Previous Financial Technology Articles

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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