The credit crunch

July 31, 2008
By: Dan Davis

If you missed the headlines last week, the Federal Deposit Insurance Corp. stepped in and closed the First National
Bank of Nevada and First Heritage Bank N.A. last Friday. That comes just about two weeks after the same folks closed
the doors on IndyMac bank.

Of course, that led to
Treasury prices going up
as the public was given one more reason to believe former Sen. Phil Gramm"s 
mental recession
may be manifesting itself in the physical world.

What does this mean to the metal fabricating world? For the aggressive companies out there, they may not be able to get the credit needed to finance their investments or expansions.

That"s not out of the question in today"s market. In conversations I"ve had with some fabricators, I"ve learned that job orders may have slowed somewhat this summer, but quoting activity is still at a high level. Buoyed by a successful year in 2007 and an early 2008, many companies may be looking to grab business while competitors retreat to hunker down and wait for worse economic news.

Unfortunately, the banks have already piled up sandbags around their bunkers. These lending institutions found the
religion of conservatism as the mortgage lending market tumbled around them. The time when money was easy to get is no longer.

In a recent poll sponsored by a major credit card company, 43 percent of small-business owners said that if
obtaining credit becomes more difficult, it will have a negative effect on their businesses. In that same poll, 14
percent of those owners replied that they have applied for a loan or a line of credit in the past three months.

This is not good news for metal fabricators, especially considering many lending institutions already had a bias
against manufacturing-related lending. Those lending officers read the headlines and assume that manufacturing is disappearing from the American landscape with each announced layoff. They don"t know about the success stories and don"t go out of their way to look for them.

I remember a story that Mark George, president, MG Products Inc., Elkhart, Ind., told me when I interviewed him earlier this year. His machine shop was looking to expand into laser tube cutting in 2004, and he decided he would go to the International Manufacturing Technology Show in Chicago that year. He contacted his banker and accountant to see if they could make the trip; after all, if they were going to approve the financial arrangements needed to purchase the capital equipment, they should have a firsthand look at just how it worked and how MG Products would put it to use.

That"s a pretty extreme example, but it really stresses the importance of having a metal fabricator"s financial team understand the metalworking business. A newcomer to a lending institution may not be so open-minded about manufacturing, particularly in these times, if a business owner doesn"t take the person by the hand to show him or her the ropes.

Metal fabricating businesses looking for credit to expand always have the choice to shop around if they are turned down at one institution. In fact, finding a community bank could open the door for a close relationship with a face that"s not going to change every nine months.

The smaller banks may be just as conservative in their lending approaches, but they also may be more willing to support local businesses. In this day of the vaunted global economy, it might make sense to keep the home base strong.

Dan Davis

Dan Davis

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8281