C.M.O. 3.5.2010
Credit Market Overview
March 5, 2010
At at least once in our lives we have all heard or thought of the adage; “If you want something done right, you have to do it yourself”. While many of the Bills clawing their way through Congress at the moment would seem to refute this as the government seems hell bent on legislating away the responsibility we all have to ourselves, there are many instances where regardless of the outcome we will really only feel comfortable with the result if we are the one’s taking action.
With the “too big to fail” institutions now well along in the process of mending themselves, with much government help of course, the headlines are focused on the next attention grabbing event, wherever in the world that might be. Back here in the good ‘ol U.S. of A. there is still a lot of mending that needs to be done and a most of that needs to occur at levels of the economy that rarely make the headlines, namely, the small and new businesses that employ many people and on whose growth the economy depends.
The Federal Reserve, Federal Deposit Insurance Corp and a host of other federal and state regulators issued a joint statement recently voicing their concern about the contraction of lending to small businesses as banks tighten lending standards in the wake of the credit crisis. Part of that statement said that the regulators were working to, “ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small-business borrowers”
Sen. Jim Bunning (R., KY) believes it is those exact regulators that are the problem saying, “It’s the Fed regulators that have stopped the flow of money out of the community banks to the small-business person”.
In many cases the frustration in trying to get money from the banks has prompted the “I’ll do it myself” response and various types of lending, some formerly shunned, are rising to meet demand.
The National Small Business Association said in its semiannual survey that about 25% of business owners relied on vendor credit to meet their capital needs between August of 2008 and December of 2009. That was up from about 18% prior to the start of the crisis. Additionally vendors appear more open to extend interest-free pay cycles and offer discounts on promptly paid invoices.
Justin Schaldone, CFO of eFashion Solutions LLC, says he is paying more of his vendors directly giving him some negotiating power which has resulted in and extension of pay cycles to 60days and discounts of between 5%-10% for prepayments.
Weezabi LLC, a three person company, and one of the few licensed to make “Crimson Tide” merchandise for the University of Alabama, needed to fund the production of 60,000 T-shirts after the school’s football team made it to the National Championships in December. Since no banks were willing to lend the needed funds, Seth Chapman, CEO, turned to FTRANS an Atlanta-based lender. “If it wasn’t for that loan, we would have missed the boat on all of this hot-market stuff”, he said.
None of the companies mentioned in today’s piece are big enough to have CDS contracts traded on them. I couldn’t even find stock symbols. The important point here, however, is that the small companies mentioned are, in many ways, the life blood of this economy and economies around the world.
The good news is that one way or another and against some pretty tall odds the spirit of entrepreneurs has not been dented. I started this piece with one adage and I will finish it with another, “Where there’s a will, there’s a way”.
I am confident there isn’t anyone in Washington that can legislate that away.
Enjoy the weekend.
Jim Delaney
