The Small Business Dilemma: It isn’t all about credit!

I was interested to see a front page story in this past Sunday’s Hartford Courant.The story was about small business, and featured Hygrade Precision Technologies, Inc., a fellow CTMA member. Hygrade’s President, John Salce, has been an outspoken activist on the behalf of Connecticut manufacturers. He is featured in this story, which dispels the myth that small businesses are lacking credit because of banks unwillingness to lend. Salce candidly shares his challenge of meeting his debt obligations when his business has been hampered by economic decline.

Horst Engineering doesn’t have any credit issues, though some of our lenders have changed the terms of loan agreements. When we renewed some credit lines, we were faced with the introduction of rate floors, a practice that banks are pushing with fervor as major rate indices hover at all time lows.  Leading up to the financial crisis and subsequent recession, we had managed our balance sheet wisely. Thus, we didn’t face challenges when the orders slacked off. The same cannot be said for many other small businesses. Many overborrowed during the good years, and then when sales plummeted, they didn’t have the cash flow to service their debt.

Banks lend based on your past performance, asset base, history of success, strength of management, and forecast profits. Banks are not to blame for making this crisis worse. Businesses need to manage through the crisis, build stronger balance sheets, balance their debt obligations, and grow their revenues. Hypothetically, if  Horst Engineering could borrow even more money, it wouldn’t change our fiscal outlook. Our growth has been impacted by sluggish demand for the products we sell. Borrowing more, or borrowing at more competitive rates, isn’t going to change that.

We are re-engineering processes in an effort to improve service with our existing customers while diversifying into new markets; both in an effort to grow again. Only increased revenues and profits will get our business and the rest of the economy moving again. Sure, credit isn’t as freely available as before this downturn, but that is a good thing. We can’t create jobs out of thin air and the banks are not to blame for this. Small businesses should be revisiting their value proposition, eliminating waste, and finding new ways to benefit their customers. Executing is harder than ever, but it needs more focus than ever.

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