She said now they’re having things appraised. Is this a bad sign?
In: Other
To answer your last question first, Yes, this is a very bad sign.
Many companies obtain from a bank a “line of credit”, which allows the company to easily borrow modest amounts of cash on pre-arranged terms. It’s used normally to smooth over irregularities in income, so the company can pay its suppliers on time. A line of credit is a bit like a credit card, except that the credit is always “secured” by something.
The security could be actual hard assets, like a building, or it could be something more abstract, like expected accounts receivable. Obviously the bank will charge more interest when the security is risky like that.
Maxing out your line of credit is a sign that the company is likely failing. Using LOC money to make payroll is the worst, and may not even be allowed by the bank’s loan terms. A company that fails to make payroll is dead – it’s not legal to continue operation (US, all states I am aware of)
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