Hamernik Headlines

Small Business Lending

Posted on 03. Feb, 2010 by admin in Hamernik Headlines, Industry Insights

Small Business Lending 

by Mark Smit – January 2010

http://money.cnn.com/2010/01/18/smallbusiness/small_business_lending_drop/index.htm

The CNN/Money Magazine article linked above highlights evidence of some of the challenges currently facing smaller, privately-held companies in the financial markets.  Among other points, the article states the following:

• In November 2009, the nation’s largest banks have cut their small business lending by $1.0 billion, the seventh-consecutive month of such declines.
• Small business owners are reporting difficulty finding banks willing to extend credit needed to launch, run and grow their ventures.
• Lending standards have been growing steadily more restrictive over the past several years.

In our practice, we have certainly seen evidence corroborating the findings in this article, and we believe it would be no surprise to many of our clients to hear that the credit markets have tightened.  In such an environment, we believe it has become even more critical for businesses to focus on managing cash and working capital, and to develop, monitor and manage their businesses to budgets that track cash, receivables, inventory, payables, short-term borrowings and other critical working capital line items.

We have also found that communication with lenders has never been so important.  Banks do not like surprises; further, banks are more willing to work with borrowers who can demonstrate and communicate their abilities to identify and manage critical business issues and cash flow.  Finally, for a business seeking new or replacement financing, management should be prepared for a more involved process than that of just a few years ago and plan for it to take longer from RFP (request for proposal) to funding.  Prospective lenders (and other sources of capital) in this environment will expect a credible plan and evidence that the business and management team has the ability to manage to the plan.

In short, the current environment has increased the need for a clear direction and the value of business planning and managing to a plan.  It is critical for management to have the competency and commitment to doing so, as businesses that succeed will be those whose management is focused on understanding and managing its cash flow and working capital positions.

Tags: banks, financing, Hamernik Headlines, industry insight, lending, privately-held companies, small business, trends