In recent weeks I’ve been meeting with lenders, advisors and some CEOs involved in funding small and medium sized businesses (SMBs); also surveying the market for what we are likely to see in Q1 relating to the same. In summary – It continues to look tight.
Asset based lenders have been a fall-back resource for many firms with constrained credit from traditional bank credit facilities. In the ABL market, there appears to be a retrenching of players, with some closing offices and pulling back into their traditional geographic footprint. On the positive side, it appears that some deal terms (though minor) are easing i.e. removal of interest rate floors. On the constraint side …I haven’t found many ABLs yet willing to fund operating companies with negative cash flow …even with a good story and lots of solid collateral.
Given the potential positive impact that small companies have historically had in creating jobs and the gloomy mood of of small business owners (as Jim Smith shared in his December Economic Outlook www.econforecaster.com), we must continue to find alternatives and creative ways to finance operations. In that vein, this month our governor (of North Carolina) formally requested actions from the federal government to loosen credit and increase funding for SMBs. Among other actions, she encouraged extension of the 90% no-fee loans from the SBA and repurposing of TARP funds.
The most obvious disconnect that must be fixed for the banks to ease credit is alignment in how regulators are controlling bankers by forcing tighter rating of loans and the administration’s message and direction of creating liquidity. Even our Treasury Secretary Tim Geithner had no real solution when confronted in an interview on NPR yesterday.
