For the past two months,(even before the credit crunch hit!), bankers have been telling me that they are getting new marching instructions from their management. The banks are in the process of reducing their leverage. What this means to companies is that even good credit companies are going to find it difficult to move their banking relationship.
I was in a meeting between my client and a national bank who had been courting my clients’ business for the past 5 years. My client had been banking with another national lender who had just been bought out. ( I will let you guess who!) As a result my client was nervous and wanted to explore moving his banking relationship. The gist of the meeting was that the loan officer said that he would be happy to make the loan but it would be at 200 basis points higher than he is currently paying. The loan officer said that my client was better off staying where he was for the time being.
Other lenders have said pretty much the same thing. All of the bankers are being instructed to take the following actions:
– take care of existing customers
– new customers must bring deposits with them
– increase pricing as loans mature
For banks to deleverage in a relatively short time they need to do three things; obtain new deposits, reduce outstanding loans, or sell assets. Some of the larger banks have been selling assets. For the smaller banks who don’t have exposure to the sub prime market their best strategy is to make loans only to those companies that bring deposits.
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Coaching the Entrepreneur: Learn how to know what you don’t know. How much should I spend on accounting for my company? I have been in the accounting profession for 32 years, and for the last 6 years, I’ve owned my own consulting firm to assist companies with accounting challenges. There is one common theme that I
