As a small business CEO and/or owner, what impact has the current economic situation had on any of your decisions to restructure the financial foundation for your business?

 CIT Group Inc., the small-business lender with $1 billion in bonds maturing next month, pressed for more aid from regulators who are reluctant to use taxpayer funds for a company that may not be a risk to the financial system, people familiar with the matter said.

Treasury officials have indicated in talks that they are reluctant to deploy funds from the $700 billion bank-rescue program, and the Federal Deposit Insurance Corp. continues to balk at debt guarantees.   As of late Tuesday afternoon (yesterday) the Federal Reserve was considering granting permission to shift some CIT parent assets to its bank. That could boost the amount New York-based CIT could borrow from the Fed’s discount window, affording more time to restructure its debt. 
Today, CIT was turned down for a federal bailout and it probably won’t receive a federal bailout and is studying alternatives with advisers.

“They’re too little to be politically relevant, and therefore too little to obtain substantial federal support,” said Sean Egan, President of Egan-Jones Ratings Co. “You’ve heard of ‘too big to fail.’ This is ‘too little to succeed.’ “ 

The FDIC is concerned that standing behind CIT would put taxpayer money at risk because the company’s credit quality is worsening, people familiar with the regulator’s thinking said last week. CIT’s collapse would be the biggest bank failure measured by assets since regulators seized Washington Mutual Inc. in September. CIT reported $3 billion in deposits at the end of the first quarter.

The general consensus is that some of CIT’s riskier clients, for instance, entrepreneurs in the start-up phase of their businesses who lack a proven track record, or those that have a blemish on their credit, may find themselves abandoned.  Also, new lenders would likely demand stiffer terms, including higher rates, to offset risks. The banks might also ask borrowers to put more equity into their business.

The problem small businesses have right now is that they have fewer customers, lower cash flow, less equity. Borrowing for small businesses is not going to get easier anytime soon.

WHAT ARE YOUR OPTIONS?

Before you either panic or throw up your hands in disgust, it may be useful to ask yourself some questions that provide perspective about your expenses that may impact how you design your current and future funding and borrowing strategy - by cutting through the complexity of your business.

Cut through complexity

• § What expenses beyond the obvious ones do you bear?
• § Are you earning sufficient return on your investment in advertising promotions, marketing, discounts and other related fees?
• § What is your cost of capital?
• § Are your margins shrinking or increasing?
• § Are your inventories too high or adequate?
• § Are you paying overtime frequently to complete orders? If so, is this because due dates are often missed?
• § Do priorities change often? § Is it difficult to respond to customer demands?
• § Are there frequent shortages of materials, parts and/or supplies?
• § Do improvements in one department often come at the expense of others?
• Do you measure what you do?

Can you find a cause and effect connection between the answers to these questions and issues that your current financial structure may or may not be addressing optimally? 

In depth questioning about your business financials is the first step in developing a funding and borrowing strategy.

As always - PROFITS Principles Community encourages your wisdom, experience and thoughts!

Warm regards,
Rosalie