“U.S. Credit Crisis Has Major Ripple Effect Through Business Financing Supply”

It has been an interesting summer to say the least in the world of business financing.

In a typical summer, things start to slow down by the beginning of August, with not much of anything going on in the last two weeks as everyone takes their last shot to get in some summer vacation.

This is not a typical year with a large amount of activity going on during July and August, much of which was unplanned due to the impact the U.S. credit down grade has had on the financial markets.

The primary form of capital to small and medium sized businesses is through the debt financing markets, which can come in a number of different shapes and sizes.

Every debt lender has to borrower the money they put out from somewhere and their own balance sheets must hold certain debt/equity ratios in order for the funds to keep flowing.

Sometimes the source of supply can go a few levels deep, with each successive source of debt financing having to manage their own balance sheet.

When the market took a nose dive, capital and equity went up in smoke, forcing some business financing sources to the sidelines, unable to produce a balance sheet that would allow their supply of funds to continue.

The result is that businesses that appeared to have a business financing facility lined up were left scrambling to find someone with money that they could move their business to.

In many cases, this is going to be more opportunistic lenders, pricing to the supply and demand of the market.

But shorter term money that is more expensive may be better than no money at all.

The same is true and more profound with equity investors and private placement houses who saw their capital get reduced significantly in a matter of days. And even if their are sources of equity that remain fairly unscathed to this point, they are still likely taking a more cautious approach to writing cheques on new deals.

The end result has been a very busy July and August with very little chance of a slow down of any sort as business owners and managers frantically look for new dance partners to fund their requirements.

And despite the low overall levels of interest, these types of sudden short term corrections can become more expensive in order to correct the new supply and demand dynamics.

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