Clifford Wright knows why the federal bank bailout isn’t working.
He says he watched a promising building supply business collapse because his bank, a recipient of a couple of billion in taxpayer dollars, rescinded his financing.
“We had a perfectly good, creditworthy deal, and they wouldn’t finance it, knowing it would put us in the tank,” said Wright, a Houston entrepreneur whose company, Simplex Building Products, shut down at the end of December.
Wright, who previously helped found Houston-based American Residential Services and Crown Plumbing and Heating, is no stranger to business startups and their financial requirements. He and his attorney claim Simplex is just one example in which Dallas-based Comerica Bank, which got $2.3 billion in federal bailout money in October, called small-business loans without warning.
“All of a sudden they yanked the rug out from under them,” said Wright’s attorney, Jason Gibson. “Comerica should be doing things to help small-business guys, because that’s in the best interest of the economy.”
Decrease in lending
Many of the biggest bailout recipients have reported a decrease in lending since receiving their bailout money. Comerica’s outstanding loans, for example, fell by 2 percent from the third to the fourth quarter.
In its latest earnings release, Comerica said the additional capital is helping it focus its lending on new and existing customers, including small businesses.
In August 2006, Wright and a business partner formed Simplex to make vinyl windows for home builders. They planned to borrow $1 million to get started. Comerica agreed to lend them $500,000, initially, with the option of borrowing additional funds later.
As a result, the business grew more slowly than expected, but by the middle of last year, Simplex had a chance to land a major deal to make windows for a West Coast fabricator, Wright said. To secure the deal, Simplex sought to borrow additional funds from Comerica, according to court documents.
He claims the agreement would have generated revenue of $35 million and a profit of $7 million over five years, and would have repaid Comerica.
Comerica not only rejected the request but informed Wright it had already sued Simplex claiming the original $500,000 loan was in default. Wright said he wasn’t notified of the suit, which had been filed in May, and that Simplex was current on the loan payments.
Comerica, in its lawsuit, claims Simplex failed to pay the full amount of the loan.
Because of the court action, and because Comerica had a lien against Simplex, the company couldn’t find other financing, Wright said.
After it lost the contract, Simplex quickly ran out of money and shut down, putting six employees out of work.
Pursuing the Case
Comerica spokesman Wayne Mielke said the company intends to pursue its case.
“This is a dispute with a borrower, and we intend to vigorously enforce all our rights and seek all appropriate remedies,” he said.
Wright and Simplex filed a counterclaim in state district court, accusing Comerica of fraud. Two weeks ago, the judge ordered the case to go to trial.
Lifeblood of Economy
Regardless of the outcome, the Simplex case shows’ banks reluctance to lend in this recession, and what can happen when small business is denied access to capital.
Last month, for example, I wrote about American Express shutting down its small-business lending and getting federal bailout money.
Small businesses are the lifeblood of our economy, and if they can’t get financing, we have little hope of an economic recovery.
Simplex’s sad tale raises a question that has dogged this bailout from the beginning.
What are we getting for our billions?