"The economic crisis we face is the worst since the Great Depression. Businesses large and small are finding it impossible to get loans, which means they can't buy new equipment, or hire new workers, or even make payroll for the workers they have".
If this quote sounds likehyperbole, that is of course because it is. It is lifted directly from Barack Obama's speech in Tampa, Florida a day or so ago. A fact that makes the quote no less chilling.
Note that Obama is not talking about a shortage of funds for venture capital, mergers, acquisitions or research and development. Nothing fancy - he is referring to the day to day funding needs of any small to medium sized business.
Small businesses in Australia have been hit by multiple whammies, courtesy of the credit crunch, when seeking equipment finance, overdrafts, and trade finance.
Equipment finance has become scarce, and made tougher by the $A's decline. Take one small business I know that was looking at purchasing a $2 Million printing press a couple of months ago. Obtaining lease finance has become difficult enough. A number of banks have wound back their leasing areas, and those left are not looking to take on any kind of special risk. Meanwhile, currency movements have driven the cost of the machine (coming from Europe) from $2M to almost $3M. If the loan was a marginal proposition (from the bank's point of view) at $2M, the need for an extra $1M is not helping.
Overdrafts, at the SME level, are largely secured by property. 'Nuff said - almost. I would just add that the latest round <http://business.smh.com.au/business/westpac-st-george-cut-rates-20081021-55ac.html> of home loan interest rate cuts - welcome as they are - reflect partially the lenders' "flight to quality". Book builds are now focused on quality over quantity. Overdraft extensions leading into Christmas - to cover holiday pay and slow January trade - will be tough to come by.
Finally, trade finance for most importers and exporters is dependent on bank to bank Letters of Credit (LC's). However LC's today <http://www.businessspectator.com.au/bs.nsf/Article/Any-port-in-a-storm-KLSE9?OpenDocument&src=sph> do not necessarily have the currency they did in the past. Our banks in some cases are rejecting LC's from overseas banks and vice versa.
Commercial finance brokers I speak with say that they have three problems: diminishing deal flow; fewer lenders to source money from and an overall tightening in credit. Obama's rhetoric <http://business.smh.com.au/business/westpac-st-george-cut-rates-20081021-55ac.html> is certainly echoing across the Pacific.
The Cash Flow Ninjas
