I received phone calls from two friends this week and I think they illustrate how our banking system and broader financial system is barely working.
A friend from the southeast of the U.S. called me on Monday and asked for my advice and help (please excuse my generalities to protect my friends and their exact situations and details). He is contractor and is bidding on a contract for a small part of several hundred million dollar energy project. His part is a couple of million dollars. He needs some short term financing to put a deposit for the materials he will use. He went to his local bank and they told him no. The bank manager that he has dealt with for years told him they want nothing to do with construction.
My other friend on the west coast works at a restaurant that is growing like a weed. They seem to have expanded a little too fast in a new location and had a major cost overrun. Regardless, they are still very, profitable and generating cash but they now have some short term debt they have to pay off. They went to their bank, and the bank said, sorry, no. Now my friend’s company is in a short term cash crunch and that has nothing to do with the fundamentals of their business and they may be in trouble.
Both of these situations are relatively simple, extremely low risk financings for banks or financial institutions. And yet neither of my friends can find banks to finance them right now. This is very, very bad for the economy as a whole and speaks volumes for the state of the financial system.
Aaron,
Your friends’ situations are the sort that traditional banks generally eschewed before the current crisis; they need to try non-traditional lenders.
Your friend in the Southeast ought to inquire about construction factoring from this company, Quantum Corporate Funding, LTD.
Your friend on the West Coast should contact this company, which has extended credit to plenty of restaurants, American MIcroloan.
Hi Aaron,
Things are quite similar in Europe where I live. Deleveraging is happening here as well and this affects good stable businesses in addition to the borderline cases.
Dave, you don’t seem to understand. Both companies had existing relationships with banks and in the past have easily financed activity such as this with these banks. Even as lately as two months ago everything was fine. It is only in the last two to three weeks that these banks shut their doors to my two friends, saying sorry we can’t lend.
Aaron,
That may be the case, but if so, their banks were exceptions. Most banks weren’t eager to extend credit to restaurants, for example, before the credit crunch.
Did you pass along the names of those lenders I mentioned to your friends? Did they have any luck with them?
Thanks for the info, I will try and pass it along to m friends.