As our business grew and as our ability to purchase more and a wider variety of product, we changed from a distributor-style operation to more of a stocking distributorship, to a hybrid of the two, which is common today in small business - private labeled products by established manufacturers that we kept in stock for immediate shipment.
We also increased the amount of products we bought, in order to lower our cost of goods and to be able to ship immediately to end users that required quick supply of our disposable products that are used by them while employing our equipment.
That change required more operating capital.
When the banks were bailed out by the TARP program, started by the Bush administration and the Fed (ostensibly to relieve the system from the stress created by toxic assets and give the new administration time to regroup and form a strategy) we the people were told it would address the damage created by the horrific practice, encouraged by the Fed, of low income, undocumented loans mixed with solid asset based securities and loans.
This Toxic Asset Relief Program (TARP) was supposed to help credit flow from the banks to the consumer. But a funny thing happened in both the old and the new administrations - they did not demand an accounting nor was there any oversight to assure the program would function in the manner in which they were intended.
The failure of House and Senate, the Fed and the Administration gave the banks free reign to use the money in the manner in which they best saw fit.
They saw fit to rape the public.
The banks made use of TARP funds, as we all now understand, to bolster their own balance sheets and allow them time to creatively acquire each other, thin the heard and create new and inventive ways to soak their customers and fleece the unsuspecting public, both individual and commercial accounts, which they did, while the new administration tried desperately to blame the previous administration.
Without adequate oversight, the banks took steps to make up shortfalls in their own balance sheets, which leads back to the decimation of small business, the true lifeblood of the American economy. Like many households (including yours, most likely) small business credit lines have been slashed at the same time rates have been increased.
The net result of these tactics has left many with a credit profile that used to show them as, to use round numbers; a debtor with a $150,000 credit line with $80,000 unused, at 9 or 10% to a debtor with a $90,000 credit line with $10,000 unused at as much as 24-30%.
Do the math. It adds up to an instant credit rating loss of devastating consequence; debt to income and debt to available credit ratios changed dramatically, lowering the corporate credit report by many points. Result? No new chance of increasing funds for operating capital and an operating increase of 20% overnight.
The effect of the restricted ability to raise capital means that many companies no longer have the ability to make up the shortfall between the credit lines available in 2008; the 2009 credit lines are not enough to expand and not enough, with the new credit rating, to maintain previous levels of support.
Unlike Mr. Obama, companies are not able to print more cash. No cash for operating expenses means something has to go, cuts need to be made and they can not afford to continue expansion plans upon which they may have spent thousands of dollars and untold hours.
The world, in effect, has been turned upside down in about ten weeks.
I say ten weeks because that is when the very same set of circumstances began to spread throughout small businesses around the country. Companies and lessees of warehouse and office space who may have contracted for additional space to implement growth plans have literally gone from boom to bust and had to give up the space, leaving commercial renters holding the bag. The commercial real estate markets will soon be hit by massive defaults; which will in turn lead to appeals for more bailouts, financing for commercial real estate projects has slowed to a trickle and a huge supply of commercial loans, coming due for refinancing, will add to stress on banks and other lenders. Rents will soar on already struggling small businesses.
Where will we be in ten weeks? Ten weeks after that?
I can say this with absolute certainty; if we do not get their attention in Washington DC, forcefully and with a mighty show of resolve, we may not be able to avoid the tidal wave of deflation and the tsunami of inflation that will surely follow.
It is important to keep the focus on what has happened and in a very short time frame. It illustrates why we must act immediately to stop this insane doubling down of deficit spending, reckless growth of bureaucracy, rush to a dangerous combination of Nationalist and Marxist rule and the dire consequence if we do not stop it dead in its tracks and stop it now.
I expected such as this when that one was elected. It seems like this should be a measurable impact on individuals [that he made promises to] and small businesses.
Thank you for posting that.
Worst case scenario, Zimbabwe. I do hope not but see nothing to change the way things are going.