Remember the Seinfeld episode where George gets indignant because a girlfriend breaks up with him saying: “It’s not you, it’s me”? George says something like “I invented that line – you can’t use it on me!”
I’ve had conversations with distributors all over the country in the past few weeks that remind me of a surreal sitcom episode … distributors have been meeting with their long-term lenders on upcoming loan renewals and have heard comments like “we’re not in the inventory lending business” and “your balance sheet is stronger but your company value is less, so we’re no longer interested in your business.” The value of nearly every business in America is less than it was three years ago … and this is coming from lenders who have had to merge, sell, and beg TARP funds just to stay alive.
Not in the inventory business? Then, obviously, they want to be out of the distribution business, right? Oh no, say these lenders, it’s just that there is immense regulatory scrutiny and all inventory is worth hardly anything in this environment. Huh?
Is this belt-and-suspenders, let’s never get burned again thinking from bankers? Or lack of judgment, paint everyone guilty, make no errors in front of the new bank bosses? What’s really happening is that these troubled financial institutions have to scrub through the ugly portfolios they’ve amassed and purchased, and everything is being written down whether it’s saleable inventory from a market-leading company or junk from a fly-by-night seller. Good bankers are in the risk management business; nervous bankers whose own companies are still tenuous are in the risk avoidance business, and that’s bad for our industry and bad for our country.
When the lenders stabilize their own companies they will be back in the inventory lending business, and these same, good cash flow-producing distributors will be top prospects. In the meantime, even great distributors look like bad credit risks to bankers who need to put their glasses back on.
George Costanza’s love life might be “it’s not you, it’s me”… but for American distributors feeling the credit crunch from their once reliable, but now shaky lender — “it’s not us, it’s them.”
Julia Klein is CEO of C.H. Briggs, one of the largest independently owned distributors of specialty building materials on the East Coast (www.chbriggs.com).
