Are you frustrated and fed up with how your bank has been treating you? You are not the only one who feels that your bank is mistreating you. Scores of business owners are finding that their credit lines have been reduced or recalled all together as they struggle to obtain credit for the operating capital that they desperately need right now.
For some business owners, it will not be poor sales or lack of revenue that drives them out of business. Instead, it will be their bank who has refused them credit to run what would be an otherwise profitable business.
In the current economic crisis, many banks in the United States have been confronted with a variety of problems, which include bad investments on their part.
The credit markets have come to a standstill, to a large degree, and the politicians in Washington openly acknowledge that it will be very difficult to solve the financial difficulties we are facing until the credit markets regain some measure of normalcy.
Although the administration just formally released their plan to purchase over $1 trillion in troubled assets that are debilitating the banks and clogging the credit markets, it will take time for the plan to impact small and middle market business owners that are desperately seeking additional credit.
Plans are in the works in Washington, but in the meantime, the credit crunch persists and banks are taking action on their own.
Since banks cannot get money from bad clients or from their nonperforming loans, they are rolling up on their good clients. Banks are calling on good customers and, for example, are slashing their $10 million credit facility to $6 million.
The banks are blaming these reductions, and in some cases, total recall on the weak economy.
In some instances, banks have decided that certain segments of the economy, such as auto parts manufacturing, must be avoided due to high-risk concerns. As a result, banks are calling in loans even on customers that are performing well simply because the bank dislikes their industry. The frustration for these business owners is in knowing that their bank received millions or billions in federal bailout dollars, which from their perspective as a taxpayer was their money. Now, the very bank that received the bailout dollars is damaging their business.
Alternatives for Raising Capital
The bank bailout is costing taxpayers billions of dollars, and these very same taxpayers are not getting much help from their banks. Until the credit markets rebound, business owners that are not getting the credit they need from the bank have a variety of alternative ways to raise capital. These opportunities for capital raising include, but are not limited to:
Real estate holdings: If the business owns the land and buildings, consider a sale-leaseback. The equity built up in the property can be extracted to invest into the business.
Non-traditional lenders: There are a wide variety of non-traditional lenders that will provide capital at higher interest rates. In some cases, you can combine the money you can get from the bank with that from a non-traditional lender for the balance of the money needed. When you blend the two interest rates, the cost of money is not unreasonable.
New equity: Bring in additional equity to strengthen the balance sheet of the business. Many times this additional equity can expand the bank line of debt level the company will be approved to take on. Mezzanine capital is a form of a loan that is supported by a small equity kicker in the business. The mezzanine capital provides debt capital needed to grow the business, and the company pays back the equity kicker at a later date.
Off-book transactions: Sometimes, equipment or other assets are purchased through the creation of leasing companies or other mediums that allow the company to get the equipment it needs but not impair its balance sheet. Do not let your business suffer or even collapse because your bank is treating you badly. Capital is available depending on the need and what best fits the approach a business owner wants to take to acquire the money.