The Borrower Is Slave To The Lender

“I told them what I thought of them,” proclaimed the president of the company to his senior management after a meeting of the local bank’s Board of Directors.

“Uh, oh,” I thought. “Better start looking for a new job.”

Once again my premonition–or common sense–was right. Six months later I was no longer building automated assembly machines. I was now in the PC business.

You see, the week after the president puffed up his pride and forgot the Proverbs that his preacher father probably taught him, he was called to a meeting at the regional level of the bank. They called the loans. Gave us six months to find a new lender. We went Chapter 7.

Let’s do the math. Sales were about $6 million, the order backlog was about $10 million. We were growing (my job), but I didn’t realize that we couldn’t finance the growth. Worse, neither did the president or the CFO. We already owed the bank $1.75 million for the nice new building. Oh, and we also owed the bank $2 million in working capital.

I entered the company very knowledgeable about costs and the P&L statement. After discovering what a shambles our balance sheet was, I learned its nuances the hard way.

My grandfather was chairman of the board of a small local bank for a lot of years. I heard the banker’s side of things since I was a pup.

I also knew about Proverbs. Among others, one says, “The borrower is a slave to the lender.”

When you take on debt, remember that.

One of the most powerful things you can do to simplify your life is get out of debt. The only debt we’ve had for years is for a car. But we had the money to write a check but figured earnings on the money where it was would offset the interest. It was no burden, and now it’s gone.

Had Dave remembered that Proverb, perhaps 125 people wouldn’t have lost their jobs.

Stay out of debt and be free.

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