(Filed Under Financial and General Interest News). BODY Magazine has updated its November Financial Roundtable! Please be sure to check our November Round Table below and on the left tab for future Roundtable discussions.
"In these difficult times many apparel companies have changed their banking and factoring relationships -- voluntarily or otherwise. Why is this happening? Will this trend continue or accelerate? Can changing a bank or factor now be a good thing? Do you have any other comments on apparel companies changing their banking or factoring relationships at this time?"
Senior Vice President
Merchant Factors Corp.
The era of easy money and free-flowing credit is over! Apparel companies that are over leveraged, carry a lot of debt, and have poor cash flow and /or losses are finding it very difficult to survive in this tough economic climate. Over-expansion, high overhead and weak balance sheets have many companies scrambling to stay in business. Lenders are reacting to these deteriorating situations.
Banks and factors both lend money, but factors aren't banks. Merchant is a specialized factoring company concentrated in the apparel industry. We aren't losing clients to competitors for better rates or more aggressive funding programs. We continue to support our clients because our business is committed to the apparel industry.
Banks are regulated by the federal government and banks are required that loans be "rated." Most use a scale of one-10, 10 being a charge off. There is also a need to classify loans at a bank as performing, special mention, substandard or loss. Often if a borrower has two quarters of losses the loan will be classified. Therefore, customers of banks are being asked to find a new lender and we are seeing more "bank deals."
Also factors are have different credit standards. In Los Angeles, we have signed a number of apparel clients that were asked to find a new relationship because they didn't meet their factors' minimum income requirement. We also have signed businesses because their factor is no longer credit approving certain customers (retailers), but our credit department is approving those customers.
Yes, this trend is going to continue and probably accelerate until the economy recovers.Yes, there are always very good and valid reasons to change your banking or factor relationship.However, we advise that companies consult with their professional advisers before they change a relationship, especially in these difficult times. If the comapny has issues with its bank or factor that can be resolved, it's a safe bet they will be better off remaining in that relationship.Companies that are spending time, energy and money to explore a new financing/factoring relationship should be doing so voluntarily and they should have very good reasons.
Senior Vice President and Counsel
Westgate Financial Corp.
Needless to say, involuntary changes in banking and factoring relationships is never good for any company, apparel, or otherwise. While at the present time a request by a lender to a client to leave or a declaration of a default under the loan may as much be the result of the lenders own appetitive for risk or the result of its own credit limitations as it is a function of the borrower's financial condition, the present credit crisis and recession is not conducive to finding a new lender, let alone a new lender on favorable terms - the rates will be significantly higher, the leverage significantly lower and the conditions more stringent.
For the same reason, I do not believe that any company should presently voluntarily look for a new lender if the principal reason for the change is either rates or borrowing base driven. For the last several years, borrowing had become a commodity. Companies have left long standing relationships and years of loyalty and support over nominal reductions in rates or nominal increases in the borrowing base. If a company has a good relationship with its current lender or factor who has been supportive over the years, the company should wait out the economic storm before it even considers a voluntary change in financing sources. While economists and economic pundits can disagree on what caused the present situation and what it will take to move us to recovery, there is no disagreement that the credit markets are going to significantly change from what we were all used to.
However, there are positive steps that a company can take to help it through the next year. If the company, financed or not, is not factoring its receivables it should strongly consider doing so. Retail bankruptcies are already on the rise and will continue to rise. In addition, companies with good sales and tight working capital should consider establishing a strategic relationship amongst itself, its current lender and a trade finance company that offers purchase order funding.
Valley National Bank
Many apparel companies have changed banks or are in the process of changing banks fo rthe following reasons: Their banks have stopped lending because of the prevailing economic conditions in the market; their bank no longer exists; their bank's underwriting standards have become more stringent.
I think, in the short term, this will continue to be the case, as banks take more losses in their lending portfolios. Change can be good if the borrower can establish relationships that will enable them to continue operations that will enable them to continue to grow as the economy rebounds.
In this environment, choosing a bank or factor that is well capitalized and well acquainted witjh the apparel industry is very important as it will enable the borrower to obtain the necessary credit to weather the current financial conditions that prevail today.
J. Michael Stanley
Rosenthal & Rosenthal, Inc.
The landscape for factors and lending institutions has been changing rapidly. These changes are likely to continue.
Just because your factor or bank has changed ownership may not be a reason alone to switch. Likewise, it’s not the time to make a change to merely save an 1/8 of a point in interest. If, however, the institution does not provide the consistent level of service and support, then yes, it makes sense to change.
One of the most important elements of a business relationship is consistency as well as having direct access to a decision maker at your lender. Being a part of an organization that, since 1938, has been providing financial services on a consistent basis makes us unique.
Disclaimer: The views expressed in comments published on bodymagazine.us are those of the comment writers alone. They do not represent the views or opinions of Bodymagazine or its staff.
NOTE: Your Email will not be displayed.