Anyone who has gone out into the market to find new small business credit or hold on to what they already have has probably experienced the new lending environment.
From our perspective two things are happening that has turned the lending spigot to a small drip. First the banks are licking their wounds from the excess (some would say reckless) lending they engaged in before the big meltdown. This has made their appetite for new loans virtually non-existent.
Second the regulators are now ruling the day in determining the risk levels banks can engage in, even if the bank was interested in extending credit. From our perspective this is somewhat a case of closing the barn door once the horse has escaped. Obviously the regulators should have been doing a better job of monitoring the lending and overall risk profiles of the institutions they oversaw during the hey day.
A couple of good articles on the current state of the lending market have recently come out and are worth a quick glance. Here are links to each, C&I Lending to Stay in Doldrums and Big Banks’ Small-Business Lending Promises.
What kind of action plan should you put in place now to ensure continuing access to operating capital?
* Use rational thought and planning to avoid knee-jerk reactions.
* Prepare a weekly cash-flow plan for at least three months (preferably six months) to see what your cash flow needs will be and how you will cover them.
* Reassure your banker of your company’s financial viability. Ask what you can expect of the bank in the coming months.
* Start courting other banks to ensure that you are not left high and dry if you experience a problem with your primary lender.
* Examine your accounts receivable for potential problem customers and begin aggressive collection and work-out activities.
* Look at exporting as a market strategy. The dollar is likely to be weak for a while and U.S. goods and services will be a bargain abroad.
* Trim excesses in your operations and hold on to internal cash.
* Get external help from turnaround experts who can help you develop a survival plan.
* Be optimistic—the economic crisis will pass in time. The key is to anticipate carefully and take intelligent action.
Planning and flexibility are key to successfully navigating these difficult times. Thinking outside the box is called for as well. Think beyond traditional commercial financing sources if necessary. Other areas to consider might be credit unions, grants, credit cards, angel investors, venture capitalists, factoring (selling a business’s receivables), friends and family, and microlenders. Each of these alternatives has pros and cons associated with them so be sure to carefully evaluate each option and which is best suited for your needs.
