How Much Credit is Available Today for Small Businesses?
We search for bank debt on a regular basis, either to fund new acquisitions or to refinance older ones, and we have numerous close relationships with bankers that lend to small and middle market companies. As such, we have a fairly good understanding of financing terms in today's markets.
Recently, there's been some news in the press about how credit terms have gotten looser, maybe too loose, due to increased competition between banks. This is true, but only for large credit facilities (i.e., loans in excess of $20 million). For smaller credits, its not the case.
For smaller loans, the market is more stable. In good times and in bad, sophisticated small and middle market bankers want to see the same thing in a credit: Good business owners and managers who they can trust, substantial equity in the business, some collateral, and, enough stable cash flow to support the debt payments at a multiple of 1.2 to 1.3. That is, the operational cash flow of the business should be at least 20% more than its proposed 'fixed obligations,' i.e., expected taxes, capital expenditures, and debt interest and principal payments. The NYT's Your the Boss blog just did a good piece on small market lending that confirms our opinions.
In short, there's credit out there but its prudent credit, which is probably a good thing.
P.S. July 8, 2011 - Wells Fargo research indicates credit is still really tight for small businesses.