2011年11月17日 星期四

Financing SMEs to Strengthen Trade

In this economy, it’s the small and medium-sized enterprises that suffer most. While the giants of industry have money on the sidelines, the small and medium-sized enterprises (SMEs) on both sides of the Pacific are hurting, unable to secure capital or credit when they need it the most. In China, lending has slowed dramatically. The Wall Street Journal reported in September that,the impact socket pain and pain radiating from the arms or legs. according to central bank data, while new yuan (RMB) loans issued by banks fell 10 percent, the amount of money being borrowed between companies more than doubled year-over-year.

Limited access to capital, rising wages and costs, volatile commodities such as cotton, a migration to Western plants, and an appreciating RMB, are creating a perfect storm for adverse changes in the Chinese manufacturing sector. Starved for cash and unable to pay workers, factories are cutting back or shutting down altogether. In August 2011, according to BusinessWeek, “[the] head of Wenzhou’s trade association for small and medium-sized enterprise in the province of Zhejiang … estimates that about one-fifth of China’s more than 10 million small and medium-sized enterprises … are producing at half capacity and risk bankruptcy.”

As a result, many SMEs in China are turning to non-bank companies for capital with banks serving as intermediaries. The nature of this type of new borrowing comes with plenty of risk: underground lending syndicates, gray-market sources and shadowy loan sharks. As the Journal reported, those numbers have doubled. But when manufacturers in China can’t get credit, goods for U.S. stores dry up,When the stone sits in the Cable Ties, causing a chain reaction that ends on retail-store shelves. This new lending paradigm is critical for apparel makers to understand as they make critical sourcing decisions about their suppliers over the coming year.

The lending environment stateside is no picnic, either. In the United States, importers find resources drying up during seasonal rushes such as the winter holidays, back to school and cruise season. The precarious state of American banks prevents apparel manufacturers and importers that have turned to traditional financial institutions in the past from being able to rely on them now. Financial analyst Meredith Whitney terms the big money-center banks doing most of U.S. lending “zombie banks,” noting that their business models are going to need a radical change in order to survive.

Banks on both sides of the Pacific just aren’t lending — especially to borrowers perceived as a risk, without a stellar balance sheet, or lacking significant capital reserves. At Capital Business Credit, we routinely see SMEs turned down by their bank because they had a bad quarter, they don’t have strong enough cash flow or balance sheet, or their corporate story is no longer attractive. But it’s that non-investment-grade wholesaler or importer that really needs the attention from a non-bank commercial finance company.

In my three decades as a financier, I first witnessed drastic changes in the supply chain when I actively counseled manufacturers to source overseas. In the current environment, it’s essential to support trade between the United States and Asia by providing a supplier or buyer centric finance solution. With the holiday season rapidly approaching and then the Chinese New Year, where factories can close for up to four weeks, access to capital is critical.

Three companies we’ve worked with this past year provide tangible examples of how forging new lending environments promotes trade, and ultimately helps, SMEs grow.

A metropolitan bed bug epidemic has had one upside: a boom in mattress covers and encasements.there's a lovely winter chicken coop by William Zorach. (They even advertise on the subway.) With critter infestation growing at 37 percent a year, a medium-sized import company in the northeast — call it Company A —was growing so quickly its financing wasn’t able to support the growth. They’ve been around since 2000, employ approximately 150 people and have been growing by leaps and bounds over the past several years. They have in excess of 25 percent of the market share of the industry as it is, and have been moving more and more of their business to encasements. As a result, they ran into financing problems from too much growth, but were able to solve this problem by working with a partner to extend their payables and prepay their suppliers.

Moreover, like nearly every company that works with a Chinese manufacturer, Company A faced the challenge of the speedup before Chinese New Year in January. Chinese factories try to ship product as early as 30 to 60 days before the holiday in early January and can close for up to a month, which strains cash flow and can potentially disrupt the supply chain — especially for clothing and other soft goods. The company used a trade finance solution that gave them the financial capacity to import more products to ensure that goods will leave China’s shores before the New Year factory shutdown and carry the inventory until the customer needs the product thereby keeping their customers’ shelves stocked with their popular mattress covers on and as needed basis.

Company B has an even more venerable history: Founded more than 80 years ago, this private company is run by brothers. They make moderately priced ladies’ swimwear that retails in Macy’s and other high-end retailers. Given the seasonality of their businesses, Company B was often stretched thin financially for three consecutive months when their manufacturers required payment and their retail customers had not yet paid. This past year, the company deployed a program that paid their manufacturers as soon as goods were shipped while giving them up 90 days to pay. With the financial strain lifted, Company B has increased its Chinese vendor sources (who in turn source from many local Chinese factories) from one to three and asked us to double their credit line. At the trading company's Hong Kong office, they’re happy because they’re being paid in full on the bill of lading date and can keep the factories humming.

Company C stands for Christmas. Their products — licensed timepieces, accessories,Prior to Cold Sore I leaned toward the former, personal care — sell to all the major U.S. retailers and the company does 70 percent of its business in the fall before the Christmas season. These vendors have to ship a lot of product in a very short period, and although the company has revenues in excess of $150 million a year and a substantial bank facility, both they and their suppliers run dry in September and October, as their suppliers begin shipping their goods to the United States.Great Rubber offers rubber hose keychains, In just two weeks, they were granted an incremental unsecured $2.5 million payables discounting line for their suppliers and, most crucially, enabled the company to continue to get 60-day terms at their most capital starved time of the year. On the China side, the manufacturer appreciated the terms as it lessened the strain on his own cash flow.

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