With the current banking environment and the significant loan losses that the banks have incurred, everyone is finding that credit to buy a business, expand a business or acquire properties is much harder today than it was 3 months ago.
Why do losses affect current borrowings? A senior bank Vice President explained that if a bank had $2 billion of lossess, the portfolio of the bank much change. Banks will allocate a certain percentage of their assets to say mortgages. If we assume 20% is allocated to mortgages, then a $2 billion loss means that the portfolio of current mortgages has to be reduced by $400 million in this case. Banks want to lend first to their good customers and then they will look at new business. Since so many people are looking for financing, the banks have become very selective in the financing they are offering.
According to some firms in the financing field believe that the financial markets are in turmoil and new types of financing will continue to evolve over the next 12 months. Until bank profitabilty increases and the introduction of new products is stabilized, it is believed that financing over the next year could be a challenge for many firms.
Does anyone have experience that they would like to share regarding problems or successes that they have had in a recent business financing?