Wednesday, January 23, 2008

Business Loans - Where are the Wheelbarrows Now?

The impact of the credit crunch on small business was featured in today’s The Wall Street Journal on both Page One and the front page for Section C (subscription required).

As one economist described the situation, no longer are there wheelbarrows of money sitting out on the street unattended. Business owners commented that it takes longer to arrange a business loan and a borrower must be better prepared. A few pages of financial statements won’t get you a loan anymore.

Small businesses with less than perfect credit are being hit especially hard. If one can even find an interested bank, the banks are lending less money and taking more collateral. In fact, some borrowers are more focused on keeping the business loans in place rather than trying to obtain new credit.

Will today’s reduction (with the possibility of more to come) in interest rates by the Federal Reserve make a difference in small business lending by banks? Maybe.

The demonstrated ability to repay the loan from cash flow will be the focus of every banker reviewing a business loan application. Collateral including accounts receivable, inventory, equipment and real estate will be carefully evaluated to ensure a secondary source of repayment. Make sure your request for money is properly presented and airtight. Ask around and find out the names of bankers and other lenders who may be a good fit for your credit profile.

The last credit crunch for business lasted three years (1989-1992) – I don’t expect the current version to go away quickly. The bigger question being asked is “how deep and how long”.

Not convinced there’s a credit crunch? About two weeks ago, I noticed that The Wall Street Journal now has a page entitled “Credit Crunch”.

Remember, if you’re not bankworthy, there are other financing solutions that are available including asset based revolvers, factoring, purchase order financing and equipment leasing. Some are only marginally more expensive than bank debt. Others – well, it is a risk versus return formula.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Wall Street Journal , credit crunch , business loans , small business

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