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This last decade has seen consistently robust economic conditions throughout North America while market liquidity for commercial loans has been unprecedented. These factors have created an operating climate very favorable to nearly all businesses. They have also obscured the true operating performance of many.
Commercial lenders have been focused upon origination for years, and many portfolio managers have never seen a downturn. In some cases, workout departments have been decimated, reducing the availability of senior and experienced staff. Current economic conditions would suggest that a review of both quantitative and qualitative warning signs of distress is timely.
Most of the clients referred to my company, which specializes in managing turnarounds, are privately held companies. Often, we are called when the business is already ill, unfortunately, even when it is critically ill.
Most companies experiencing difficulty can be saved if their problems are caught soon enough. Frequently, there are warning signs or red flags that, if heeded, can give the company time to act before it is too late. This article aims to give loan officers some insight into the warning signs that indicate a company is headed for problems.
In the turnaround profession, everyone has his or her pet signal. There is …