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

A Business Plan is really a marketing document for a company as a whole. It is used to present the company to an external party such as a lender, investor or potential M&A partner. One client of ours used the plan to raise money and then updated it slightly a couple years later to sell the business.

A good Business Plan is exciting. It reflects what is unique about the company and helps the reader understand its future potential. That is not to say a Business Plan can ignore the weaknesses of a company—in fact, a good Plan will disclose the weaknesses together with context and a discussion of how the weakness is being addressed.

We always try to find a special “hook” for a plan, a memorable explanation of the company’s business model or offering. A graphic is the ideal way to make an intangible like strategy more tangible to the reader.

The creation of a good Business Plan takes time. We would never advise a company to invest in this document just in case they have a need for it. But if there is a pretty good chance that you will need to raise money or attract partners in the future, start preparing now by keeping a file of stories that express who you are as a company, data that gives perspective on your market, and documents that will help paint a picture of the great opportunities that await your company—and, by extension, your potential partners.

If you think about the first fifty years after the invention of the computer, they followed a similar pattern. And now, we may be at the beginning of our own renaissance with respect to the way we use computers.  The Internet and web technologies are creating a shift in our economy and our world that will be as dramatic as the introduction of the printing press.

Dashboards are a real-world manifestation of this shift—one that you can exploit today.  You can move beyond using your information systems just to store and access data.  With dashboards (and the technologies behind them), you can link disparate data sources, drill down to uncover the story behind the numbers, as well as learn and see connections that were never obvious before.  Until recently, most of these dashboard systems were custom-built for companies like WalMart.  As dashboards move into the mainstream, they are helping to speed business model innovation—enabling companies to outsource any and all “non-core” activities.  If you can still have the full information you need to manage a process, it will matter less and less whether you own the process.

One thing to keep in mind, however, as we all work more and more closely with this approach to management information, is that as powerful and informative as these dashboards are, we should be mindful to look through the windshield as well.

¹ The Drucker thoughts are from Beyond the Information Revolution, NY: St. Martin’s Press, 2002)

-Mary Adams    2006

“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).