TIP: Dealing With The Financial Crisis
Has the credit crunch affected small business more than large corporations? It’s safe to say that small businesses won’t be seeing the same bail-outs that the big financial institutions have seen, and that money has become tight over the last few months with no end in sight. Before September’s bailouts and financial debacles, many small business owners were already feeling the pinch of a tightening credit market and the backlash from the nation’s ongoing economic difficulties. Things may get tougher.
Surveys undertaken by the National Small Business Association (NSBA) illustrate how significantly small businesses have been affected. In April, some 55 percent of business owners surveyed indicated they had been adversely affected by the tightening credit market. More recent data suggests that the number is now a whopping 65 percent. Here are some suggestions and guidance on banking, credit, and other key issues for small business owners:
Some 12 banks have failed in 2008 so far, and others are said to be floundering. What should you do if your bank fails or is acquired by another financial institution? If you have $100,000 or less in deposits (as per your taxpayer ID or Social Security number) the money is insured through the FDIC. The agency has a web site that explains how deposit insurance works and what to do if your bank fails. The FDIC does not release information on bank ratings, but some private firms do and you can get the names from the FDIC web site.
Alternatively, you can access the web site operated by The Federal Financial Institutions Examination Council (FFIEC) www. https://cdr.ffiec.gov and look up financial data on any FDIC insured institution. To do this, you only need the bank’s name and the location of its headquarters. Once you access the data, pay attention to the information listed under total risk-based capital ratio. The higher the ratio the stronger the bank and the less likely it will have problems meeting its obligations.
Deposits made at Credit Unions are also insured up to the same limit of $100,000 through the National Credit Union Administration. Increasingly, Credit Unions have become an important source of capital for small businesses, but in some regions, Credit Unions have a significant involvement in home equity loans, too. Considering the rate of mortgage defaults nationwide, it might be a wise move to take a look at the holdings and overall strength of any Credit Union that holds your money.
If your bank is taken over by the FDIC or is acquired by another financial institution, the new owner will assume responsibility for any outstanding loans you have. If you are looking for credit, these are lean times. Loans for start-ups and expansion plans had already started to dry up prior to the Washington Mutual failure and the AIG bailout. Acquiring new loans will be even tougher. If you are an established customer with an excellent credit rating, you should still be able to borrow money, but expect the approval procedures to be long and more complex. Businesses that rely on discretionary spending are expected to be squeezed more than others—restaurants, retailers, consumer goods—and along with these categories, any small businesses who supplies or sells to businesses in these sectors will have a tough time acquiring credit.. Bear in mind that economists predict a tough Christmas season ahead for major retailers, and some big failures if revenue declines persist. Any small businesses whose fortunes are linked to big retailers are expected to suffer, too.
Despite the tough credit situation, there is money available from private equity investors. This is a buyer’s market and venture capitalists will be looking for good deals, and so bring a well conceived business plan and all your negotiating skills.