I spent the weekend enjoying BBQs, watching fireworks with my family, including the in-laws (oh joy). Actually, I'm lucky in the in-law category as I enjoy them all but I did notice that my Private Equity Fund Manager brother-on-law who works in Boston, USA, looks ten years older than the last time he visited. When I asked him how the US markets were doing, I was expecting him to give a repeat of the media – recession over, blah, blah. Instead, I was disturbed to hear him say that he was seeing private companies going out of business at an alarming rate.
Apparently, banks are not lending money which is the same as the body deciding to stop creating blood. Then there is also the freeze in consumer spending which continues despite the government softly whispering to frightened horses, “It’s OK to go out and use those credit cards.”
My brother-in-law’s doom and gloom report from small business America does confirm reports I have heard from large family owned Canadian companies. One Canadian CFO reported that he had attended a conference in the US and was shocked to learn that American family owned companies, and we are talking blue chip companies, were getting money at 18% line of credit and they thought that was terrific.
This is the reason why Canadian private equity is looking south and doing more deals there than in Canada where banks are still lending at 3% to this particular family business.
When the small to mid-sized companies start closing down, this is a disaster. The bulk of jobs are in the SME market
The key is for government to focus some of their stimulus tax breaks and cash flow breaks on small business balance sheets. Here in Canada, the Ontario opposition leadership race looked at GST tax equalization but a better one would be to reduce tax on new equipment purchases. Any other suggestions?