Most small businesses rely heavily on their banks for growth and sustenance. Loans provide a business with capital to start or expand, and to help them manage the money they already have. If a bank changes the terms of its contract with a business, it can put the company in serious jeopardy.
New York City-based Color-Web, a division of 1800Postcards.com, has sued its lender for breach of contract and fraud for $13.8 million. The printing company alleges the bank reneged on a financial commitment to provide almost $4 million for new technology in 2007. The bank gave the printer a $200,000 deposit, after which Color-Web changed its business operations to accommodate the technology, a state-of-the-art, custom-built printing press. The company says the bank withdrew its financing as other printing businesses began to fail, and that the move was a violation of the agreement.
The company’s president says the decision to withdraw its financing had nothing to do with Color-Web’s performance. But because the business operations changes weren’t quickly reversible, it suffered material loss from the bank’s decision, company heads say. Color-Web has had to lay off almost 100 employees in the metro area since the funding was pulled and is currently considering closing.
“This lawsuit is not just about Color-Web’s claims against a bank,” the company president said in a statement. “It is in defense of the notion that when institutions prey on small businesses and innovators, the most reliable engines of job creation, they should be held accountable for damages that result.”
Color-Web’s lawsuit is a counter-claim to its bank’s attempts to recover the $200,000 deposit on the printing press. The bank’s lawsuit was filed in September 2011. With so many eyes on the actions of banks nationwide as they’re scrutinized for their lending restrictions, it will be interesting to see whether the company is successful in its litigation.
Source: PIworld.com, “Color-Web Launches Lawsuit Against Bank,” Feb. 24, 2012
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