Read the full article by Gene Zorkin at YNOT.com

As noted in a recent article published by AmericanBanker.com, the hesitance on the part of many banks to provide loans to (or invest in, or do any other kind of business with) adult entertainment businesses doesn’t appear to be based on concern over the prospective debtors’ ability to repay the loan.

Citing data from IbisWorld, the article reports that the nearly 4,000 strip clubs in the U.S. “earned $1.3 billion last year on $6.6 billion in revenue” and the clubs’ aggregate revenue “grew by a 1.8% annual rate from 2012 to 2017.”

In most business spaces, such numbers would be music to a lender’s ears, a signal of a healthy industry sector in which there’s money to be made through reasonably safe and secure lending. This isn’t how most banks view strip clubs and other adult entertainment businesses though. Adult businesses, fairly or otherwise, are viewed as a source of “reputational risk.”

“It would not surprise me to learn banks shy away from strip clubs,” said William Isaac, former chairman of the Federal Deposit Insurance Corp (FDIC), who added that the Office of the Comptroller of the Currency lists reputational risk as one of the factors FDIC examiners should take into account. “I have no difficulty believing examiners would frown on loans to strip clubs. “After all, the OCC and FDIC identified loans to payday lenders as fraught with reputational risk a few years ago.”

While the article cites one sizable bank loan to a company which operates strip clubs – a 10-year, $81 million loan deal to Houston-based RCI Hospitality (the operator of the extensive “Rick’s Cabaret” chain of clubs) by Home BancShares – smaller companies and individual clubs typically struggle to find banks willing to work with them.

“They have a very difficult time receiving funding,” said Angelina Spencer-Crisp, executive director of the Association of Club Executives (ACE). “And if you’re new to the business, most banks will say ‘no thank you’ even if you have strong credit. Banks are a little bit skittish.”

“Skittish” might be putting it mildly.

 

Gene Zorkin has been covering legal and political issues for various adult publications (and under a variety of different pen names) since 2002.

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