Scott,
Thanks, I too think your article is packed with some great advice. However, I'm still waiting for the article Dan called for, HOW will the current situation affect small business.
I'm a 20 year veteran of the banking industry. I was a consultant and small business banking expert for the last 5 years and consulted with banks all over the world. The first thing that's happening, and we predicted this 5 years ago, is that our banking institutions need to consolidate. NEED to consolidate, we didn't know how that was going to happen, but we knew that there wasn't enough business to go around. So something had to happen. The greediness of some in the banking industry catalyzed this process making consolidation inevitable, and the weakest links fell.
Ray of sunshine: Nobody's talking about how strong Wells and JP Morgan are, how giddy Bank of America is to be gobbling up these former competitors. But they are. I'm not saying that they're happy this crisis is falling on the shoulders of the American population, they're not, but they are delighted to pick off competitors like it was a Thanksgiving Day turkey shoot! (apologies to animal lovers) Look for more of that to happen.
In 5 years we will look like Canada's or Australia's banking systems - 5 or 6 major national banks, about 30 in the next tier down, and then a drop off in numbers.
Why is that important? Massive amounts of cheap credit have been available to Small Business all the way through to Medium sizes then to large corporates, because there are so many options to getting cash. It's been our fuel, the engine behind this country. When the availability of cash dries up, the growth of the system dries up. If you can't borrow it, you can't create it or grow it. Basis tenet of finance: cash is king.
Case in point, when the regulators changed a capital definition in 1990 requiring huge amounts of additional capital be held in reserve, that sparked off a chain reaction throughout the whole economy, lenders couldn't lend, borrowers couldn't borrow, and those of us who are old enough remember we went into a - you guessed it - major recession. Major credit crunch.
Same thing here. Banks, all banks, are taking write offs right now, are struggling to adjust their capital calculations, because of this rampant and somewhat irrational fear. By adjusting capital allocations they no longer have as much money to lend as they did just yesterday. Credit crunch. (WaMU went down NOW, because people took 16.7 billion dollars of deposits out of the bank between Sept 1st and Sept 15th. There is NO WAY a bank can cover that capital call, so by design, by law, they had to be seized.)
Okay, so, if the businesses I mentioned above can't get their juice, in the form of a line of credit, a revolver, or term debt, they can't grow. If they can't grow then the people on this list, in what is referred to (by bankers, mind you) as the micro segment, mom and pops, or SOHO market, will feel the pinch IF their major market is to these types of companies.
If you're a solopreneur, who's "store-front" is a talent, like consultants, contract workers, massage or other therapists, technology workers, you're a knowledge worker and you'll be fine. Not rich, not taking extravagant vacations, but fine. You may be impacted by a lower home value, or less money in your stock portfolio, but you're fine. Same for bakeries, retail stores, anyone focused on the consumer. You'll see a pull back, and Scott's article is great advice to help make it through, but you'll be fine. Remember banking is the second oldest profession - it ain't going anywhere.
If however you sell up the food chain, there should be a re-thinking of your strategy over the next few years.
Not a panic, a rethinking.
There is so much mis-information out there, I wanted to jot down a few comments quickly and hope this helps.
If anyone wants to discuss this further I'm happy to share what I know from a banking perspective.
Be well, Kelleen
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