Credit crunch not going away soon

I had a conversation a couple of months ago with a friend who is a manufacturing representative for several metal fabricating companies. The guy is sharp and runs the business as a one-man operation. He's busy and invests in software tools that help him keep track of deliveries and expedite responses to RFQs. He's the smallest of small businesses with similar-sized pockets.



When this current economic slowdown in manufacturing really got serious earlier this year, he needed access to more credit just to keep the business running. His customers were delaying payments, and he needed credit to keep the lights on and the deliveries on schedule. It took a face-to-face meeting with the banker to arrange the increased credit limit, but he finally arranged for a larger safety net.



For my friend, a couple of large orders really have made the search for more credit a distant memory. Other companies in the metal fabricating community should be so lucky.


The credit "crisis" does not grab the headlines as it once did. After all, Michael Jackson went and died. (Let's not forget the passing of Fred Travalena, ladies and gentlemen.) But dollars remain tight, and banks aren't going to change their lending practices overnight. Even now you can see the effects of these practices with larger companies.



Norm Roller, partner in the financial services firm Suby, Von Haden & Associates, Madison, Wis., believes that a metal fabricating company looking for new access to credit really has to have its act together. A fabricator needs to show the bank that steps have been taken to address cost control during a time when growing revenue may be next to impossible.



"I tell you that banks are looking at companies that are proactive and timely with delivering their information. The lines of communication have to be very open," Roller said.



Even then the access to additional credit may not be assured. Roller said that smaller companies that feasted on overrun work from larger OEMs or that were heavily aligned with one industrial segment, such as automotive, may be looked upon as unfavorable credit applicants. Banks see the larger manufacturing companies cutting their work forces and bringing work in-house that was once farmed out, and that isn't a good sign for the smaller companies down the supply chain.



Of course, metal fabricators can make their case, and they should if the alternative is passing on a golden opportunity or simply shutting the doors. If they can only wait, the credit environment might loosen up.



Roller said banks aren't likely to change their current approach for another six to nine months, but that's when many economists think an economic rebound may be firmly under way.



By that time the Michael Jackson coverage will have died down.



Also, Abe Vigoda is still alive. You know you were wondering about that.