The credit crunch will be felt even more in the months ahead as a result of the financial earthquake suffered on Wall Street this past Monday according to The Wall Street Journal (subscription required).Those with less than stellar credit histories will have the most trouble borrowing money to run and expand their operations.
Need anecdotal evidence of a credit crunch?
One of my colleagues introduced me yesterday to six new deals - all for small and medium sized businesses seeking lines of credit ranging in amounts from $1 million to $10 million. In each case, the borrowers had been told by their lenders to find replacement sources of financing. All of the companies were offering accounts receivable and inventory for collateral.
Here are a couple of reasons these companies are having trouble finding lines of credit.
- operating losses accompanied by negative cash flow
- too much inventory relative to sales volumes
- significant exposure to foreign accounts receivable
Asset based lending will likely be the solution for most of these deals. The interest rates will likely be much higher than what they're currently paying.
I had two interesting conversations today with bankers. The first with an SBA lender who commented on a shrinking pipeline of deal flow. The second with a banker who spoke of cherry picking deals and increasing the interest rates charged to borrowers.Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!
Tags : credit crunch , business loans , accounts receivable , cash flow , lines of credit
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