Optimism When The Chips Are Down

Posted on April 7, 2010 by LCT Staff - Also by this author

Just like many of you, I have felt the effects of the economic slowdown. As a true capitalist, the past year’s economic policies that have been implemented by the Obama Administration have troubled me. I know many of you are struggling as are other industries related to travel and ground transportation. Business is the lifeblood of travel, so when business falls, ergo the long tail of the travel.
I have heard that many limousine and charter operators have tried to weather the storm by getting additional lines of credit to maintain a positive cash flow in a declining market. I have heard too that many of you were shocked to find that your bank or lending institution was less than amenable to extending you any additional credit, although you had been doing business with them for years. I recently saw an article based on a survey conducted by the National Federation of Independent Businesses (NFIB) that has information you may find useful. The assertions made by the author of the article are somewhat telling and indicate why things are tighter than first thought.
The NFIB released the report "Small Business Credit in a Deep Recession":
  • 55% of small employers attempted to borrow in 2009; 45% did not, although 5% of owners, so-called discouraged borrowers, did not try because they did not think they could obtain credit.
  • 40% of small business owners attempting to borrow in 2009 had all of their credit needs met; 10% had most of their needs met; 21% had some of their needs met; and 23% had none of their credit needs met. The current level of borrowing success is significantly lower than in the mid-2000s when up to 90% had their most recent credit request approved.
  • The financial institution extending a line of credit changed the terms/conditions of the line(s) during 2009 for 29% of small employers having at least one. About 10% with a business loan had the same experience as did 22% with a business credit card. The most frequent change was increased interest rates.
  • The best predictors of success in meeting credit needs were higher credit scores, customers of banks with less than $100 billion in assets, more properties collateralized for business purposes, and fewer second mortgages held.
  • Overwhelmingly, the most common planned purpose of credit rejected was to fill cash flow needs.
  • Broad and deep real estate ownership is a major reason why small businesses have not yet begun to recover, why larger businesses have been able to recover more quickly than small businesses, and why this recession is different, at least for small business owners, from recent ones.
This is what is meant by this report:
"The findings show that while obtaining credit has become more difficult, declining sales and/or depressed real estate values typically lie at the base of credit problems," as quoted by Denny Dennis, senior fellow with the NFIB Research Foundation. He further stated, "That means current small business problems will not be solved by simply focusing on lending issues. Policymakers need to tackle weak demand and real estate."
In other words in order to come out of this economic downturn, there needs to be and increase in the demand for goods and services. The government’s Keynesian intervention through massive spending initiatives and lending policies to the financial markets is not going to address the weak demand for our goods and services. In short, the government cannot spend its way out of this recession and no amount of reallocation of wealth from the private sector will spur growth; in fact it is doing just the opposite.
This great country has flourished among nations because it relies on a sustained demand-based capitalism in order to expand the economy and strengthen it. The recent policies of this administration appear to be deliberate acts of sabotage to diminish the power of our capitalistic society. To spur demand, the private sector needs to expand and the government must dramatically change its policies of spending. Our industry depends on expansion. The current crisis has resulted partly from economic policies that actually have the reverse effect.
It has always fascinated me how some people believe that the government’s intervention is necessary to spur economic growth. If you looked back in history, the government’s intervention into the private sector has always squelched economic growth. The spending of trillions of dollars has had a negligible effect on the economy, because when this money is combined with the negative rhetoric of this administration, consumer demand remains stagnant. Although 93% of all new jobs are spurred by small business and well over half of the country is employed by small business employers, less than 2% of the stimulus plan was targeted at the small business owners. It amounts to a little under $16 billion or about $350 for each small business in the U.S. (spend it wisely).
As a limousine operator and an American consumer, it is easy to understand why this economic turnaround is being stalled. Recent stories have shown that limousine operators are not buying new inventory, coach builders are closing, businesses are tightening their belts, and so are you. This is not going to stop until you and the American public believes that the end of this economic slowdown is over. Just like you, your customer is making similar rational decisions and cutting back on spending. Just like the consumer, all of the businesses your company supports and depends on are making these same decisions. Such a snowball effect cannot be stopped by the economic policies of the Obama Administration.
The only thing that will make the future bright is for consumer confidence and business optimism to improve. We need policies that encourage small businesses to expand. Small businesses like yours need to receive financing that will encourage you to grow your business rather than just maintain the status quo (the reason lenders aren’t lending) or you can’t spur growth. Consumer confidence needs to improve through the use of political rhetoric that gives the American public a sense of optimism. The word “Crisis” has been bandied about so much in the last year that everything appears to be a crisis, and therefore public concern is at an all-time high and confidence at an all-time low.
Yet, how do you deal with this? Do you sit and wait or do you move forward? I believe that any company that sits it out and waits is just going to find itself withering on the vine. Now is the time for clear optimism and a concise plan for growth. It is time to think outside of the box and find new and inventive ways to generate business. If you look at your business and find new ways to generate revenues and cut costs and expand, maybe the rest of the world will follow suit.
I believe that the rugged individualism of the American entrepreneur will overcome this economic downturn. If you take a different approach and go to your lender showing the expansion of your business rather than just keeping the doors open, I believe you will find a different result the next time you go to apply for a cash infusion. I believe lenders, financial institutions, and even investors are willing to put their money in a plan that proves itself and grows. So take the time to optimistically evaluate what is out there that can add customers to your businesses. Talk with your competitors and learn from them. How and why are they growing? You can try to weather this storm and wait for the economy to improve or you can ride this storm and expand your business — and be all the better for it when a strong recovery takes hold.
— Jae Morey is vice president of business development with CheapLimoRates.com. He writes two separate blogs that focus on the limousine industry. “LIMO-U” is a blog that is educational in nature and covers numerous topics about how to use limousine services for various events and other industry related topics. His blog “The Limo Lane” is about all things limousine with topics that are of interest to limousine operators and industry customers.
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