“Once I built a railroad, I made it run
Made it race against time
Once I built a railroad, now it’s done
Brother, can you spare a dime?”
With these classic words from a Bing Crosby song, today’s topic is about the current state of the credit markets. Last night I attended a presentation by Barry Yelton, a Senior VP with Federal National Payables, an asset-based lender that specializes in financing for government contracting firms. Here is a quick summary and my own thoughts…
Credit is still tight. (Duh!) But banks have been slow to kick out their traditional commercial and industrial borrowers. Also many asset-based lenders have scaled back or closed their doors, including Sovereign Bank (shut down operations outside of the Northeast), Textron (closed ABL and factoring altogether) and GE Capital (minimum deal now $20 million). Some bank-affiliated ABL’s are still active in the middle market, including Wells Fargo and PNC Business Credit. Factoring is still available if you don’t mind paying in through the nose and back out through the wazoo.
A picture is worth a thousand words:
Source: Federal Reserve Economic Data
The only good news is that if you can get credit, interest rates are low, and should remain that way for awhile.
It may help to explore all places in the credit spectrum if you have a current need – banks, non-bank ABLs, factors, mezzanine lenders, SBIC funds are all options.
My own opinion is that it will take a good bit longer, at least well into 2010, for credit to return to normal. Let’s face it, we became overleveraged as a society. Like a python digesting a pig, it’s going to take time for consumers, businesses, and yes, financial institutions too, to become right-leveraged again.
For now, if your business needs to borrow, good luck but don’t count on it.
— David Bass
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