Some businesses are trying to avoid banks that took TARP money, not wanting their fate to be in the hands of the government overseers (as Northern Trust learned this week with the flap over the sponsorship of the PGA tournament in Los Angeles). If your business needs a multi-million dollar loan facility, working with larger banks may be unavoidable. But if your loan needs are smaller, you might be better off looking at community or medium sized banks that rejected the government’s funding offer.

Also, owners should consider other forms of capital, such as injecting more equity or shareholder loans, as well as better trade terms from suppliers.

Business owners should become accustomed to the idea of more collateral needing to be pledged, higher rates and fees, requests for personal guarantees from the owners and tighter covenants. At all costs, loan defaults must be avoided because banks will not show much appetite to forbear. If your company’s revenues are declining, you must be ruthless in cutting costs in response (or in advance) to avoid this possibility.

At some point, from the lessons learned in Argentina, it is likely that inflation will return to the U.S., and business owners and investors will need to be ready to adjust their financing practices. However, at least for the near term, Fed chief Bernanke has downplayed the threat of inflation.

Today’s lending environment in the U.S. isn’t quite that bad, but it also bears no resemblance to that of a couple years ago. If businesses can find loans from banks these days, the loan rate and fees are higher. The covenants and advance rates are also tighter, a far cry from the “covenant-light” loans that were made in 2005 and 2006.

The capital injections by the Bush and Obama administrations have averted a total meltdown of the U.S. banking system, but have created some “zombie” banks by deferring their inevitable insolvency (liabilities exceeding assets, exacerbated by declining asset values). The injected capital has supported some key internal ratios, but no conditions to lend were attached, so the funds did not create much market liquidity.

So who’s lending? Let’s look at eastern Massachusetts, where I spoke with some bankers off the record this week.

The lenders who are booking new lending relationships are re-financing relationships that exist at other banks. There is little expansion of lines of credit. There is no merger and acquisition activity.

At some of the biggest banks in the area, here’s what we’re seeing. B of A is in the papers every day because of the disastrous acquisition of Merrill Lynch. An explanation of their lending approach in the lower and middle market is that the Bank would lend, but there is concern about the credit quality of the borrowers—so not many loans are being made there. Citizens just announced huge losses for the last quarter of 2008 and for the year as a whole. Sovereign was recently acquired by Banco Santander from Spain, which is now instituting tighter credit standards and overhauling the culture, making its lenders more cautious. And TD Banknorth appears to be the most active in lending at that end of the market, but can be selective when reviewing credits from these other banks.

One tier down, Middlesex Savings Bank and Eastern Bank seem to have avoided the toxic assets found at B of A and Citizens and are lending more aggressively, albeit selectively. Even in this sector, banks are establishing higher floors to loan rates, requesting more security, and tighter covenants.

Even mezzanine lenders, who were shut out when senior debt lenders were making more aggressive loans a few years ago, are getting involved—in response to the request by senior lenders to have more capital.   Mike Oleksak   2009

Mergers are taking place, with the most recent big deal being Delta’s takeover of Northwest. Many overlapping routes will be eliminated and the number of flights between cities will more than likely decrease—as will many Northwest jobs along with them. After all, airline mergers are supposed to be effective because of cost reductions—meaning a reduction in flight routes, equipment and people.

All of these changes undoubtedly will result in reduced competition and higher ticket prices. These events also can be expected to flow over into air freight. If the airlines raise their prices, it will give room to other transportation segments to do the same.

We recommend keeping a sharp eye on these developments and how the higher costs will affect your business.

• What can our company do about energy costs? The less you consume, the more you also become “green” by reducing energy demand and greenhouse effects.

• What can our company do about rising transportation costs? There are shipping alternatives that are less expensive. Find out which ones would be acceptable to your customers.

• Are there options on employee benefit costs? It is time to call in your benefits provider and sharpen the pencils for next year. There are some creative solutions that can be surfaced with some research.

• Are travel costs under control? Make sure your travel department is as efficient as possible.

This type of questioning can be asked about many different components of your company’s expenses. It takes some perspective and different thinking to protect margins in inflationary times. The sooner you address these challenges, the better off you will be.

- Michael Oleksak   2007

So we are always pleased to see new data that supports our case—the latest being survey results published in CFO magazine this week highlighting how far most companies have to go to improve their understanding of intangibles. The areas where senior managers feel they would benefit from better information include: employee commitment, customer satisfaction, innovation, quality of management processes, relationship with supply chain, and brand strength, among others.

We want to make our newsletter more of a two-way dialogue. So here’s a first stab—we would like to hear from you on this one. Do you see the need for hard information on soft assets? Why or why not? Let us know.

“The greatest change that has to occur in the finance role involves the intangible assets of the corporation. As we have shifted to a knowledge-based economy, the drivers of competitive advantage are resources like people, processes, knowledge, external networks and brands. Today, only 20 percent of corporate value can be explained through the book value of tangible assets. The rest is in intangible, intellectual capital. The implications of this are widespread.

Financial reporting doesn’t give an accurate picture of a corporation’s productive “assets” (as was the original intention of the balance sheet). New approaches to performance measurement need to be adopted to help management, and new approaches to assessing the strength, outlook and risk of the corporate portfolio of productive resources also need to adopted.

Failure to adopt new approaches will relegate financial executives to be truly bean counters, in charge of the income statement but having little input into the future capacity of the organization.”

The full article includes thoughts from leading CFO’s and academics (you have to register to read it, but it is free).