As I peruse the business financing landscape these days , one observation I’ve made numerous times already is that there are less visible commercial lenders now than 18 months ago and many of the ones that remain are still sitting on their hands waiting for the recession to blow over.
The conclusions to draw from this is that in 2010, capital is going to continue to be hard to come by and lender intents hard to accurately gauge or predict.
While this is not at all encouraging news for business owners, it does provide the opportunity for a competitive advantage on a number of fronts.
The most obvious would be situations where a competitor aggressively expanded immediately prior to the recession and is now likely up to their teeth in debt that they may not be able to manage. If you have the financial backing in place, this could be market share for the taking without a great deal of effort.
For those planning ahead and requiring capital to fulfill their strategy, the race may now go to the steady not the swift. Yes, certain market opportunities will not wait and if capital is not acquired in a timely fashion, will disappear all together. That’s going to be life for the foreseeable future so business owners and managers are going to have to adept or waste loads of energy, skin and blood banging their heads against the wall.
No, for the slow and steady, deliberate marchers, there will be capital to be hand. Lenders and investors are being super selective and super selection requires longer and deeper due diligence processes as everyone is looking for great value but doesn’t want to make any mistakes. Lenders and investors have portfolios which are in play and could still fall apart, so any incremental lending or investing must be considered portfolio strengthening, not portfolio risking.
Also keep in mind that this message will largely fall on deaf ears regardless of who is making the decree. As I’ve previously written, business financing is a largely unplanned event that is initiated and/or motivated by some sort of time pressure on the prospective borrower. This behavior is not likely to change. Business owners and managers will continue crisis managing their capital requirements, but will discover that in the present environment, most of their past strategies aren’t going to work.
For those that take what I’m writing to heart and start focusing a little farther ahead, the potential for securing capital for future business opportunities remains high. Just remember that you have to allow time, in many cases, more time than you can image, to get financing in place. So pick opportunities and projects that can operate on a parallel path to your existing business and don’t have a hard short term time limit for completion.
While everyone else is battering themselves against the wall, you can be developing a strong position for capital procurement that will allow you still take advantage of certain opportunities over the coming year that others may not be able to because of their business financing approach.
It can be hard to be patient, but until things turn around, capital will more often be issued to the tortoise, not the hare.