As we move through the 2009 part of the recession into 2010, I continually get asked what do we have to look forward to in 2010 with respect to being able to secure business financing in the market place.
Here’s my current take on the situation.
As the economy improves, so will the availability of capital as lenders will start to open up the purse strings and feel better about the overall risk in the market place.
So all in all, availability of capital is likely to be higher in 2010 than in 2009 for the active lenders.
But despite what appears to be an overall improving condition, there are still some things to be concerned about from a business financing point of view.
First, there will be significantly less lenders in the market place in a number of categories. The recession will see hundreds of North American banks and lenders and perhaps thousands of international lenders close their doors. With the pull back in lending funds and the increase in default accounts, many small lenders have not and will not survive the current recession.
Second, major banks have held on to their higher risk accounts for the most part, charging them more interest in fees, but not realizing against the covenants that currently aren’t being met by hundreds if not thousands of businesses.
In previous recessions, the majors were quicker to clean house and get rid of higher risk accounts. But this time around, facing the deepest recession since WWII, major banks seem to have focused on maintaining their portfolio to generate earnings as new loans have been few and far between.
So, with the recession turning around, and new borrowings likely to increase, we are also likely to see the big banks return to past practices and start to get rid of their “special loan” accounts over the next 6 to 9 months. Hopefully this doesn’t happen, but if it does, continue to closely manage your cash flow, because the ripple effect caused by a large number of businesses being thrown into a collection and recovery process could be massive and far reaching.
It doesn’t take many dominoes to fall in a supply chain before everyone in a particular channel gets impacted one way or another by slower payments, reduced credit, and canceled or incomplete projects.
The economists may be saying that the worst is over. That may be true, but to be safe, keep a look out for the potential for a few large waves to crash through the market over the next year.
Hopefully no one will be hit by a cash flow Tsunami.