Easy Money Fueled a "Subprime Meltdown": We have all watched the meltdown of the "subprime" loan industry with shock and awe. The industry had been offering loans with more flexible terms and criteria for borrowers who could not qualify for traditional loans. Subprime loan use and abuse exploded in recent years, as both a cause and an effect of skyrocketing real estate prices. Many subprime borrowers now face rising payments, or even foreclosure. The subprime lenders themselves face the prospect of foreclosing on loans secured with little or no equity in this cooling real estate market.
Meltdown Created a "Credit Crunch": In recent years, more and more loans-subprime and otherwise-have been packaged together and funded by investors. Some investors seemed to forget that their rewards went hand in hand with a certain degree of risk. They were surprised by the collapse of the subprime market, and reacted by pulling back their investments, even into higher quality areas. The smaller pool of funds has forced lenders to raise loan criteria, documentation requirements, and other hurdles for borrowers. Investors have also reassessed their appetite for risk in other markets, like commercial real estate, mergers and acquisitions. Even booming Private Equity Firms are finding less money available for business acquisitions. This has stalled several high-profile acquisitions, and rocked the stock and bond markets.
Credit Crunch may Restrict Consumer Spending: Many consumers have been tapping equity in their homes to support their spending habits. Homeowners have come to think of their homes more as "investments," or even "piggy banks," than as places to live. They forgot, ignored, or never knew that real estate prices do not always go up; they can also go sideways, or even down. The credit crunch leaves less home equity available for consumer spending. It may also scare consumers into spending less and saving more. That is not necessarily a bad thing, although it may hurt businesses in the short term.
Leaving Less Cash and Fewer Buyers for Small Businesses: The resale value of a small business is usually based upon its sales, profitability, and desirability to buyers. The credit crunch may restrict consumer spending, resulting in lower business revenues and profits-and resale values. Prospective buyers may also have less cash available, especially from home equity, for buying businesses. They may also be reluctant to leave steady jobs in an uncertain economy.
Creativity is the Key to Selling a Business in this Market: Businesses can still be sold in this market. Owners can take some comfort in knowing that the market for small businesses tends to be less volatile than the market for real estate. Nonetheless, selling a business now requires much more creative and effective marketing strategies than in the past. Marketing must find as many prospective buyers as possible who have enough motivation and cash to complete the purchase. The buyers will also look to sellers to provide more of the purchase financing. Sellers will need the services of a top Business Advisor. The International Business Broker's Association website, www.IBBA.org, can provide a list of local Certified Business Intermediaries-the true professionals in business sales.
Comments(0)