Financial Relief Without Gov’t Bailout!

Posted by pcbasentry on November 25, 2008

By modification of a simple accounting rule, the government could give relief to banks and small business and not cost the government one dime of bailout money. Mark to Market, is an accounting rule that requires banks to re-evaluate asset collateral to todays market value. For example, a small business has a project, building, or business valued two years ago at $1,000,000 and the bank agreed to a 70% loan to value. That means the borrower took out a loan for $700,000 and put up $300,000 in equity. Although business is slow and perhaps the borrower has laid off folks, but the doors are open and the loan is not delinquent. Now comes the banks appraiser and says the business or building is now worth $800,000. Based on the 70% loan to value rule, the borrower is required to come up with another $140,000 cash! To make matters worse, some banks are not only requiring the additional equity, they are telling the small business borrower, we are reducing or eliminating your business line of credit. So what do you think is going to happen….a performing loan becomes a non-performing loan, the business person lays off the rest of the staff and closes the door!
This is preventable, just tell the regulators to get their foot off the necks of the banks and tell the banks to get thier foot off the necks of the borrowers and postpone enforcement of Mark to Market.


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