The 2020 Mid-Year Economic Update_long

Search for Capital Grows More Difficult

In   the recent MDM Reader Survey, about three-fourths of readers said they are concerned with current credit markets as it pertains to their day-to-day operations and growth plans."
 
Credit has been virtually frozen in the past month or so and has rippled through the economy. Lending standards have tightened and scrutiny from banks has increased. Chris Coetzee, managing director at Robert W. Baird &Co. and head of the firm's Financial Sponsor Group, told MDM for a recent article that bankers will also increase focus on the end markets companies sell into. (Read Credit Crunch in the Channel.)
 
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In   the recent MDM Reader Survey, about three-fourths of readers said they are concerned with current credit markets as it pertains to their day-to-day operations and growth plans.”
 
Credit has been virtually frozen in the past month or so and has rippled through the economy. Lending standards have tightened and scrutiny from banks has increased. Chris Coetzee, managing director at Robert W. Baird &Co. and head of the firm’s Financial Sponsor Group, told MDM for a recent article that bankers will also increase focus on the end markets companies sell into. (Read Credit Crunch in the Channel.)
 
The magazine Inc.com encourages small businesses to be persistent in seeking funding: “The search for capital will probably take a lot longer than it did a few years ago, and the pot of gold at the end of the rainbow will not be quite so big.” Explore all options with bankers, Inc.com says, and don’t use your home as collateral if its value is shrinking. The article says to try to get a business line of credit based on assets or profitability of the company; communicate with your banker about any major contract you have just landed or any other financing you have secured, even if it is small. Why? Inc says that it will improve your debt-to-equity ratio.
 
Despite the credit crunch, and a downturn already in some markets and coming in others, Tom Lange, managing director and head of Robert W. Baird &Co.’s Distribution Group, says distributors can position themselves to come out ahead. “I think the strong can get stronger,” Lange says. “We saw that earlier in the decade when the economy picked up in 2002 and 2003. Those distributors with healthy balance sheets who invested in people and the business during the downturn -and in fact added talented people who had left a less secure situation -those distributors came out of the downturn the strongest.”
 
Jeff Jenkins, senior vice president of drywall distribution buying group AMAROK, offers this piece of advice: “Whatever situation you’re in is not going to stay the same. …There is a fine line between growth and overleveraging yourself. You have to be prepared for these times.” The industry is cyclical, he says. When the times are good, know that they will not stay that way. When the times are bad, prepare for when they will get better.

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