It is time to rant a tad about the banking industry. I know, easy target. And I am sorry to my banker friends for a less than favorable opinion of the way things have gone. I have lots of friends in banking and they are working hard, harder than they have in the past. I find them to be a little more humble, a little less comfortable with their "position" in the world. This because of the recent pullback.
Hey, I walk around with a target on my back too. Because I am the one balancing cash flow to growth ratio as a bootstrapper. It sucks knowing that a payroll has to "be put together" in a strategic fashion. Who gets paid first?--they do, the employees. I can't help but be a little bitter. It hasn't been easy changing gears mid stream either, and my business is not even as outwardly effected by the slowdown as others. We were caught in the midst of transition from a small business to a medium sized business with a lot of cash out investing in our infrastructure. With the capital markets puckering in the way they are now, it is a very dangerous time to be evaluating where the money is going to come from. I have needs and want to make the right decision, choose the right capital partner. It is a prudent and surgical decision how to finance the coming years. It is relationship oriented. I don't want to screw it up with expensive money or the wrong influence. There are sharks out there. I am jumping them.
Now a lot of supply vendors have a compound bow cocked and ready release because terms have been stretched as default to not having any more line of credit. For some small businesses, this is as significant as the bank, perhaps more so if supply is cut off. Again, we the hero's of our economy, the small businesses who employ people, we now resort to the use of supply vendors to make up for what the bank won't lend. Supply vendors are small business and are now often pushed back 60-90-120 days in an effort to retain business and wait out the financial woes of the troubled banking industry. They should have a pot to piss in. Couldn't the banks have made money on these "interest free" loans? Broken.
And I ain't talking about strategic lead outs like In-bev either. The beer giant who, in an effort to finance the buyout of AB, stretched vendors to the point of collapse. Says Steve McKee "By forcing other companies to finance its operations, InBev is tying up capital that doesn't belong to it. That hinders those companies' ability to invest in innovation—not to mention meet their monthly payrolls. InBev is stealing their futures, plain and simple. And in plain sight."
While this is standard operations for these guys. The bank has forced this to occur as part of the capital pullback. It is common and it is troubling to the overall well being of business. The integrity of the average American company is higher than that as a group, we should and would rather pay interest on money borrowed, pay our bills in accordance with predetermined and agreeable terms. If the banking industry would not have made it so hard to adequately provide financial resources at a time when we need it the most, I would not be scathing.
So this morning a report comes out on the real reason for the crisis. Turns out it was only in part do to the sub prime lending issue. It was bank panic from "institutional investors and firms who refused to renew sale and repurchase agreements (repo) – short‐term, collateralized, agreements that the Fed rightly used to count as money". Also according to the report, "the development of this genuine parallel banking system did not happen overnight. It has been developing for three decades, and especially grew in the 1990s. Bank regulators and academics were not aware". So it was a mis-judgment by the banks and their advisers that resulted in this mess. And it is not the first time.
I am not sure who to feel sorry for or who to be pissed at any more. I simply want the market to return and the bankers to quit waving me in to their front doors like a carnival barker to get my attention. Once inside I hear the same story, "we are lending money, tell me about your business". Once the information is taken, its off to the back room, the board of directors senior lenders, with skin in the game. Count on double the collateral for any loan in this market.
Nope, the institutions, the former ivory towers in our community who (used to) hold the key to small business opportunity and continued emergence has come down a notch or two. I have had many friends and family effected by the downturn in the industry, those in the banking industry. I am indeed fortunate to have a relationship with the bank that allows for my cautious emergence. A tough spot for any entrepreneur. But necessary for now.