Looking for Light at the End of the Recession

Certainly economists and experts far brighter then me are pondering the question, when will we see the economy begin recovering. Some television pundits have cautiously begin talking about the “bottom” lately. Since my view is at the street level and theirs is at the 30,000 foot level, I want to share some ideas today about what a few common folks on Main Street think.

For retail, those small restaurants and retailers that were too weak to survive 2008 are gone. Those that did get through the end of the year are breathing a sigh of relief at the same time holding their breath. Many didn’t have as bad a January and February as they projected, and spring and summer often bring out more shoppers. I have spoken to a number of retailers who are happy there is decreased competition in their markets. There is a little optimism that with decreased competition will come increased sales and a little more profit. 

Working capital remains very tight for all small businesses and the smart ones are wisely hoarding their cash for the possibility of tougher times ahead. One business that is seeing a modest uptick in revenues said they are putting aside safety cash. I asked the owner how much safety cash he felt was necessary. His answer, “One month’s worth of payroll and rent, and enough extra cash to cover two weeks worth of vendor purchases.” Many businesses that fell back on credit cards and bank lines of credit a year ago have either reached their credit limits or have lost their credit lines. 

Over the months I have assembled a list of potential events (not necessarily in order of importance) that need to occur before we will see things noticeably improve:

• The employment outlook must start showing steady improvement
• Consumer confidence must improve significantly
• The stock markets must show continued signs of improvement
• Banks must deal with the enormous amount of “toxic assets” on their books
• Average companies need to start showing a profit and increasing sales
• There needs to be a pick up in the residential housing market

Several of these points are very big problems, such as the disposal of bank “toxic assets.” Equally important is the improvement in the employment outlook. How our government and banks work together to deal will be a key determining factor in how quickly an expansion may begin.

I expect banks lending activity to lag the recovery by two years. As a former commercial banker I see this issue very simply. Bankers want to see two consecutive years of profitability before they feel safe loaning money to a business. If a business shows a break even or modest profit in 2009, I anticipate that business being eligible to borrow from a traditional lending source after their 2010 tax return has been completed. Call me cynical, but that is my experience as a lender.

Share your own thoughts by noting my blog below, or email me and I will summarize your thoughts in a future blog.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions.

You may contact Sam directly at: sam@lesliethacker.com

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EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.