From both a borrower and lender point of view, we are seeing more of what I call business financing hypocrisy.
Lenders are interested in your business until they’re not interested in your business at which time they will call demand loans, cut back on lines of credit, term out lines of credit, increase interest rates, and invoke whatever get out of jail free cards they may have build into their funding commitment to the business.
Borrowers are just as bad in that they at times will promise everything but the moon and the stars to make the lender comfortable with a capital request, but when things don’t go according to plan and loan obligations can’t be met, the borrower calls his or her lawyer and tries to come up with a legal strategy to basically get around having to honor his or her promises.
When the economy is going well, these types of scenarios are played out very infrequently. But when a recession hits, as it has for the past two years, business financing hypocrisy is everywhere and its every man or woman for themselves.
The net result of this type of two way hypocritical behavior is that the financing markets are slowly down to a crawl in many sectors and geographic regions.
Lenders are asking a lot more to protect themselves with most commercial financing decisions now focused on asset based security and risk management.
Borrowers try to protect them selves by constantly looking for a better deal as they don’t like the changes in lender requirements and search for someone who is more in line with their expectations.
To say there is a lack of trust from both sides overall would be an understatement. In tougher economic times, most people tend to take a more conservative approach.
For the desperate borrower, its basically a take it or leave it market with the lender setting out what they are prepared to do without really any flexibility.
For better deals, borrowers have become more patient as lenders are having trouble hitting their borrowing targets which is the way they make money. So for good deals, there is a high level of competition and as a result, a patient borrower can find some pretty good deals as lenders cut margins to only secure solid opportunities.
But regardless of who is in a position of strength or weakness, promises made by either side are very weak. Business financing has become a game where borrowers have to become better players to keep up with the changes in the capital markets.
If you have a business financing requirement or problem you need assistance with, give me a call and we can go through it together.