Nothing that "farts, floats, or flies"

So now we are in a lending environment where lenders are "working to rule". A year or so ago, banks would lend any amount of money to any small business as long as they could meet one criteria - that being that the owner of the business could "fog up a mirror". OK, I am exaggerating, but this is a blog, not the Financial Times!

I started my commercial finance career in the 1980's and apart from having to suffer FM station over kill of some pretty awful music, I witnessed lending exuberance including the financing of art works, race horses, exotic boats and aircraft. I clearly remember writing a lease for a Ferrari Testerosa (forgive my spelling rev heads) for some $400,000 to a psychologist. The monthly payments were roughly half of my annual salary at the time.

Then the froth and bubble gave way to the recession we had to have, and the edict went out to lenders in the equipment finance business that we were not to consider financing anything that "farts, floats or flies". No more deals for animals, boats or aeroplanes. And then for a time, our superiors made it very difficult for us to finance anything that did not have wheels. That is, motor vehicles were fine, but plant and equipment became very difficult to finance. Lenders over reacted and overcompensated for earlier bad lending practices, and I think the economy must have lost some productivity as a result.

Someone said to me the other day that whereas once the banks used to have lending "policies",the hypercompetitive environment in recent years saw these policies become mere "guidelines", but that now "policies" are back. Expect banks to over compensate for their recent profligacy - just as they did a decade and a half or so ago. Good business plans will go unfunded as the baby is cast out with the bathwater.

As another old friend of mine in the bad old days (the eighties) used to say - there is nothing new under the sun, and the cycle will keep cycling. Lets just hope that the banks retain some balance in their lending practices this time around.