Selling with Nadilo: Look around — it’s not business as usual
It seems that business is stuck in a rut. It fell and it can’t get up. Forget business as usual. It just ain’t happening. The rules are changing before our eyes. The ground is moving. No one knows where to turn.
If this all sounds ominous, it is. There is not a single person I know who hasn’t expressed the above sentiments in one form or another over the past weeks. Business is not as usual since the Wall Street situation. The common theme is both sales being soft and the inability to get bank financing.
I am very close with two restaurateurs whose recent experience almost exactly mimic what is happening in the marketplace. I share this with you because it might drive the point home that is being talked about in the news in more global terms.
What are the ramifications when banks don’t lend to banks? Most people don’t really understand what this means. Frankly, I really didn’t fully grasp this until I heard my restaurant friends’ recent experiences.
Here’s their story.
On Sept. 15, the week in which this whole Wall Street mess seems to have come to a head, my friends were meeting with both their potential new Manchester landlord and their local Manchester-based bank. Previously, the bank had provided a pre-authorized review of their loan request for their new location and, based upon this, a formal letter of intent was being entered into with the landlord.
Everything was moving along smoothly until Friday. The bank called to say all loans were “off the table” until further notice.
In subsequent discussions, the bank said the 10 percent down payment SBA loan was no longer viable and “more money was needed to be put down.” However, due to the current situation, they really didn’t know how much was required but guessed that 25 to 35 percent might be required. For my friends, that was a huge difference in money needed to open their next location – potentially a deal breaker.
Interestingly, my friends found that the ability raise private money became more viable as the returns from traditional sources have become anemic. The current 1 to 2 percent return on investment is not very compelling. If a private business can pay 6 to 8 percent on a private investment, it becomes attractive to people who might not have previously considered this kind of deal.
Additionally, my friends found local economic development funding and, combined with a private investment, approached their bank again. This time they had close to a 40 percent down payment on the loan they were seeking.
The response from the bank was very concerning. They said that they were still sorting out their lending policies as there is no longer a source for them to sell their loans. In other words, they can’t find a bank to lend them money. Without a bank to buy their loans, they have relatively limited capital reserves from which to lend and consequently have to highly restrict their bank lending practices.
Hence, the loan that back on Sept. 15 was pre-authorized and the basis for my friends’ expansion plans, was now in limbo. And, it’s not because the bank doesn’t want to do business with my friends. It does. It’s just that the basis for the bank’s whole lending strategy has changed.
Talk about “Who Moved My Cheese?”
I wonder how many businesses — like my friends’ — are in the same situation. Look at the ramifications:
• Local business can’t expand and add jobs
• Landlord can’t lease space
• Real estate agent can’t make commission
• Restaurant supply house can’t sell equipment
• Food service supplier can’t sell food
• Beer wine and liquor company can’t sell its goods
There are many more. All of them are stalling our local economic growth because banks aren’t lending to banks. nhbr
Rudy Nadilo is a sales and marketing expert. He can be reached at firstname.lastname@example.org.