Banks More Competitive For Commercial Loans
A quarterly survey of senior loan officers by the Federal Reserve found that in the April survey, a “modest” number of banks reported having eased their lending standards and having experienced stronger demand over the past three months. Standards on commercial loans to large, middle-market firms, and small firms, were about unchanged. However, a “moderate” number of banks eased many terms on commercial loans to firms of all sizes, with most indicating that they had done so in response to more aggressive competition from other banks or nonbank lenders. Fewer than half of the banks that reported having eased standards attributed the change to an improved or less uncertain economic outlook.
Banks also reported an increase in demand from firms of all sizes, for the second straight survey. Banks also reported that the number of inquiries from potential business borrowers regarding new or increased credit lines increased. Banks reporting stronger demand cited shifts in borrowing from other bank and nonbank sources, as well as increases in customers’ funding needs related to inventories, investment in plant or equipment, accounts receivable, and mergers and acquisitions as important factors underlying the increase. Banks reported that their credit standards on commercial loans to both large and middle-market firms and to small firms were little changed over the first quarter of 2012.
It is no secret: banks are competing for high grade loans, and rates are low. While this continues to be good news for high grade borrowers, less-than-perfect borrowers are seeing only little relief. Now if I could only figure out how many banks constitute a modest versus a moderate number as far as the Federal Reserve is concerned…and credit crisis solved.
Tablets Quickly Becoming Primary Computing Devices
By 2016 there will be 760 million tablets in use globally representing a 46% compound annual growth rate, Forrester Research forecasts in their just published report “Tablets Will Rule the Future Personal Computing Landscape.” That’s pretty dramatic growth considering that in 2011 56 million tablets were sold.
Why the rapid growth in the tablet market? According to Forrester’s Frank Gillett, “Tablets aren’t the most powerful computing gadgets. But they are the most convenient.”
Gillett explains:
They have longer battery life and always-on capabilities better than any PC — and will continue to be better at that than any ultrathin/book/Air laptop. That makes them very handy for carrying around and using frequently, casually, and intermittently even where there isn’t a flat surface or a chair on which to use a laptop.
And tablets are very good for information consumption, an activity that many of us do a lot of. Content creation apps are appearing on tablets. They’ll get a lot better as developers get used to building for touch-first interfaces, taking advantage of voice input, and adding motion gestures.
Forrester goes on to forecast that by 2016 one third of all tablets will be purchased by businesses and we will “see a very different computing landscape, with tablet adoption having had a dramatic impact on PCs.”
These predictions are probably not a surprise to many small businesses and schools that are already using tablets for many of their business functions. The Street recently reported on the growing using of tablets by small businesses in their article “Why Every Small Business Needs an iPad”. According to Mike Pugh, vice president of marketing at j2 Global:
Credit card processing off a mobile device is a great way to be able to do business in a variety of different settings. Using the camera in the device to be able to do both taking pictures and video. For someone who has remote offices, video conferencing can be a fantastic way to maintain contact with customers or employees. Using the camera is also great way to do documentation; essentially it serves as a scanner that can document insurance claims or for interior designers to be able to take pictures of different environments.
What are we seeing? We have seen an uptick in schools leasing tablets for the 2012/2013 school year especially since Apple’s launch of the new iPad.
What questions do you have about leasing tablets for your business or school? Please contact us and we will walk you through the options.
Consumer Confidence at Highest Level Since 2007
Regardless of high gas prices, U.S. consumers are more confident about the economy than they have been since late 2007, according to the latest consumer survey by Thomson Reuters/University of Michigan.
The survey also reported that more households are describing the most improved financial situation in the last four years and are the most optimistic about employment prospects. Perhaps even better news for businesses, the data from the survey indicates “inflation-adjusted personal consumption expenditures can be expected to grow by 2.3% in 2012.” Consumer spending drives two-thirds of the economy.
The U.S. Commerce Department also weighed in and said “personal spending rose by a bigger-than expected .8% month over month in February, the largest monthly rise since July.”
All the upbeat consumer news is tempered by a warning from the survey director Richard Curtain, “Gas prices of $4 are no longer shocking, if they approached $5, the impact would be widespread and substantial.”
Manufacturing Up, Beating Expectations Again
The U.S. manufacturing sector’s expansion continued in March and employment perked up, according to data released today by the Institute for Supply Management, indicating mildly expanding activity. The ISM sub-indexes last month improved also. The new orders index increased, as did the production index, the factory employment index and the inventory index. However, construction spending decreased by 1.1% –the biggest drop since July.
We watch the ISM index to gauge the economy’s performance. However, a much more useful indicator for us is what our customers tell us. Typically, in a positive economy, our manufacturing customers acquire equipment in anticipation of demand, or to take advantage of new technologies and efficiencies new equipment can deliver, or to replace old equipment on a regularly scheduled basis. In today’s economy however, customers have to be more reactive, acquiring equipment only when ROI is absolutely compelling or to replace equipment well beyond its useful life. Activity in a sector will also factor into credit approval decisions. Because the manufacturing sector is on the upswing, lenders and lessors view manufacturing customers more positively. This is in contrast to the construction sector, causing construction sector companies to find credit harder to get.
ISM also reported that spending on construction projects in the U.S. fell for the second consecutive month. Private nonresidential construction–including office, commercial and infrastructure building–drove the decline, falling 1.6%. The building industry suffered greatly during the financial crisis, shedding more than 2 million jobs between 2006 and 2011. But more recently, the sector has somewhat regained its footing, adding nearly 100,000 jobs in the past year as construction projects have restarted in many areas of the country. A glut of cheap, foreclosed homes still on the market is keeping interest in new homes in check. But a report last month showed demand may be picking up as building permits reached their highest levels in nearly 3 1/2 years.
How to get your financing approved
Michael Lockwood, President of TEQlease Capital, wrote an article for Up and Running Blog that was published today titled “5 tips to getting small business financing “. We are including an excerpt from that article below.
It’s no secret that small businesses have had a hard time getting financing approval for nearly four years. But according to the latest Wells Fargo/Gallup Small Index –a quarterly survey of small business owners nationwide – small business owners are now more optimistic about getting credit than they have been since July 2008. According to the report, 28% of U.S. small businesses plan to increase their capital expenditures in 2012, the highest rate it has been in four years. And perhaps most importantly, 24% of small businesses have already started increasing their capital expenditures for 2012.
With optimism for gaining financing spreading, the question for many is how to best approach lenders to maximize the chances of getting a credit approval. Here are five keys for small businesses to get approved.
- Demonstrate that your business generates steady cash flow. Cash is still king and is also a key predictor of a business’ health and prospects for the future. By being able to demonstrate you have ample and/or steady cash flow, you are ensuring to potential financers that you have plenty of money to pay creditors, employees and others on time.
- Maintain a manageable debt load. Debt load is the amount of debt that is carried on your balance sheet. You need to be able to demonstrate you can not only handle your current debt load but also the additional debt repayment your proposed financing will cause. If you want to incur the debt for expanding your business be prepared to demonstrate why this additional debt will be beneficial.
- Sustain a positive payment history. One of the most important factors for any financer to weigh is a business’ payment history. A financer needs to see that a business has a record of paying down debt, and on time.
- Prove business judgment. Potential lenders want to be assured that you anticipate potential challenges and have a plan in place as to how to address these challenges. Furthermore, lenders are also interested to see that you have the management in place necessary to overcome any obstacles that might come your way
- And of course, shop around for financing. Don’t assume your bank or the vendor will offer the best terms. Compare rates, lease terms, fees and options and use only established financing providers.
If you have any questions, please contact us.
All Eyes on Detroit and U.S. Auto Industry
With candidates campaigning in Michigan all eyes are on Detroit and the U.S. auto industry. What is important for us in the asset-based business lease finance business is how Detroit’s fortunes impact credit markets and bank liquidity. While it is still a tough task for many businesses to access capital, consumers are finding access to auto loans much easier. Consumer auto financing is in effect leading the charge on increasing credit and liquidity.
Experian Automotive announced that the automotive loan market showed continued improvement, with interest rates for new and used vehicle loans reaching the lowest levels since 2008. In Q4 2011, average credit scores for new and used vehicle loans also dropped, the percentage of loans to customers with nonprime, subprime or deep subprime credit scores increased, and lenders increased their willingness to make loans between six and seven years long.
Here are some highlights for Q4 2011 in auto finance.
Consumers continued to do a better job of repaying loans in Q4 2011, as loan delinquencies fell. The 30-day delinquency rate fell 6.57 percent from Q4 2010 to Q4 2011 (2.98 percent to 2.79 percent). The 60-day delinquency rate fell 9.51 percent.
Another positive sign for the lending market is that the overall dollar volume of loans at risk dropped to $18.5 billion, a $1.862 billion drop from Q4 2010. Average interest rates for new vehicle loans fell to 4.52 percent. Average rates for used vehicle loans fell to 8.68 percent. Average credit scores for new vehicle loans dropped six points to 767. Average credit scores for used vehicle loans dropped nine points to 679. New vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent.
Overall, more encouraging signs that our economy is indeed on the mend.
How to Avoid Customer Backlash over Price Hikes
2011 was certainly a water shed year for customers taking to social media and other channels to vent their frustration over price hikes. Backlash from angry customers forced Verizon, Bank of America and Netflix to reverse their planned price hikes. We wrote about price hike push back from customers in our post “The Most Annoying Fees of 2011.”
However, with business picking up in many sectors, Rafi Muhammed writes in his article for the Harvard Business Review, “Don’t Let Customers Freak Out Over Price Hikes”, “chances are that your company will consider a price increase this year.” Rafi is a pricing strategy consultant and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow.
According to Rafi, a CFO advised him, “The key is not to let a price hike become emotional to customers, because that’s when they become irrational and ultimately leave.” In order to avoid the backlash that Verizon, Bank of America and Netflix faced from their customers, Rafi recommends businesses follow the five tips below.
- Employ Bedside Manners. Make sure to explain to your customers why you are raising prices.
- Offer Choices. According to Rafi, customers don’t like to be “cornered” and are more agreeable if there is an “option to save money.”
- Keep Your Word. Again, customers will be more agreeable if you leave their existing deal intact and only raise prices “to new purchases and renewals.”
- Emphasize Value. If you are offering a good deal even with the price increase, demonstrate to your customers how it is a good deal.
- Everyone Else is Doing It. Let your customers know that competitors are also raising prices but again, show how your prices are a better deal.
Hopefully, by following these tips, when it comes time to increase your prices you will not be met with angry customers.
U.S. Manufacturers Looking Homeward
U.S. companies, especially manufacturers, are looking homeward in the face of slowing growth in China and the continued uncertainty in Europe the Wall Street Journal reported this week. What does this mean for U.S. businesses?
For United Rentals Inc., it means that the “world’s largest equipment rental company’ is increasing its spending by nearly a third in 2012 as more of its customers in construction and industrial choose to rent instead of purchasing their own equipment. For Carlisle Companies it means they are opening new plants in the U.S. and moving their tire production back from China.
For Union Pacific it means that the locomotive giant plans to “buy twice as many locomotives this year, spending upward of $400 million.”
United Rentals CFO William Plummer told the WSJ, “It is an environment that feels like it is building momentum. We are coming out of the depth of the recession and are starting to build momentum on the upside.”
U.S. manufacturers’ investing at home is more encouraging news for the U.S. economy.
U.S. Businesses Stepping Up Spending
According to the Wall Street Journal, American businesses stepped up their spending going into the New Year, propelled by an economic upswing that has yet to lift much of the housing market.
New orders for U.S. durable goods—those lasting longer than three years, such as automobiles and kitchen appliances—rose 3% in December from November, the Commerce Department said. The data suggest that business spending on equipment climbed for the first time in three months, indicating renewed confidence among companies.
While the housing market has much ground to regain, corporations are poised to boost production in coming months, powering the U.S. recovery as other parts of the world slow down. Several factors are at play. Demand for automobiles has taken off as Americans who put off purchases during the recession and early in the recovery are now replacing cars and buying new ones. In addition, manufacturers—who saw business slow over the summer—say demand is picking up.
The durable-goods numbers, along with indicators of a brighter outlook among employers, signal pockets of strength in the American economy even as Asia loses momentum and the euro zone teeters toward recession. There were gains in every major category, from primary metals to machinery, with the exceptions being electrical equipment and defense products. Orders for nondefense capital goods excluding aircraft—a proxy for business spending—rose 2.9%, after two months of declines.
Overall, good news for the recovery.
Should Your Company Be Thinking Like a Startup
If “startups are hothouses for creativity and innovation, while large corporations are too jammed up with bureaucracy” is it time for companies of all sizes to “think like a startup”?
In Emily Heyward’s article for Fast Company this month “How Any Company Can Think Like a Startup,” she takes a look at what startups are doing right that businesses of all sizes can learn from. Heyward finds that:
- Startups are flatter. Heyward believes this is an important trait because in a startup the people at the top are more engaged in the creative process and are “collaborating with us on strategy.” This is important because everyone is “on board that there’s never a question of whether or not the best ideas will move forward.” However, in a larger business, the higher ups generally are not as involved in the creative process and may shoot down ideas that have been closely worked on only to have to start again.
- Startups have tighter timelines. Startups don’t have time to waste and belabor or second guess decisions. Tight timelines can help move the creative process along and ensure everyone is meeting their targets.
- Startups value disruption. According to Heyward, the “best ideas, the ones that everyone remembers, are always disruptive.” Heyward argues that businesses can learn a lot by startups by embracing and valuing disruption.
Could your business benefit by acting more like a startup?
