Occupy Wall Street: Its Impact on Banks and Credit Unions

Occupy Wall Street (OWS)Ever since Occupy Wall Street began life last September in Manhattan’s Zuccotti Park, it has sought to spark a national debate on our economic system and the way its spoils are divided. As an investment banker and small business lender, I am often asked about the movement and its impact on banks and credit unions. Here are my thoughts on some of the questions I get asked most often:

  

Has anything changed since Occupy Wall Street first began?

Smaller banks and commercial finance groups are starting to speak up about bad service and unfair competition from the bailed-out (“too-big-to-fail”) banks and about how inefficient they are. Also, I believe the reversal on debit card fees is a direct result of Occupy Wall Street, which helped fuel the consumer backlash. The protests and media coverage certainly amplified concerns and heightened the conversation. It’s a claimable victory for Occupy Wall Street.

Have smaller community banks and credit unions benefited through customers moving their money out of the large Wall Street banks?

 
Smaller banks may have benefited in increased deposit relationships at the beginning.

Have bank customers become more polarized?

 
Absolutely. Occupy Wall Street needs a bit more direction and few bullet point issues to rally around. In the early stages, the movement was driven by a general feeling of malaise, but as time goes by there will likely be a rallying around a few key issues. This is when the movement will really gain momentum. Whoever strikes the note will emerge as a thought leader in the space.

Have lawmakers listened, and if so, what are they saying in an election year?

 
Nothing. They are still clueless and afraid.

In this instance, is social media’s bark bigger than its bite?

 
I don’t think so. Wait for the weather to get better in spring and summer of 2012. The movement will explode, and social media will prove to be a potent rallying force in its support.

Keep in touch with the team at US Capital Partners: Tweet us at @smallbizlending and share your thoughts on Occupy Wall Street (OWS).

What To Do if You Need Recapitalization: How to Find the Right Advisor or Small Business Investment Banker

If you're concerned about protecting your small business financing and want to know if your company is at risk of losing its bank loans, I strongly recommend you take our brief Business Loan Risk Assessment to measure the risk of your bank calling your small-business loan.

If, after this brief assessment, it appears you are at moderate or great risk of having your bank loans pulled or not renewed, what should you do? The answer is “shop your loan,” or have a professional shop it for you. Most commercial banks are essentially the same when it comes to credit assessment and the types of loans they can make. In the current climate it is nearly impossible to find another bank to take over your loan if your current bank wants you to exit. So walking up and down the street to shop your loan will not be productive.

Where else can you turn? The answer is alternative lenders. These are primarily independent asset-based lenders and financial services arms of banks. Where do you find alternative lenders? Here lies the problem. In the small-business lending world, alternative lending is fragmented and difficult to navigate. There are many lenders and an abundance of financial products but few lenders that will make one loan on all the assets of your company, like you probably had with the bank. Usually, each alternative lender specializes in a certain asset class. They generally will not loan on other asset classes.

Additionally, the pricing for this alternative lending can range from extremely expensive to very reasonable and similar to your commercial bank pricing. These pricing variables are based on a risk assessment of the loan and the type of risk exposure these respective lenders specialize in. If you happen to pick the wrong group of lenders to shop your loan, you will be paying more than you deserve to pay at close.

You are also, of course, left with the problem of having three or four new lenders, each with different terms and pricing, lending on different collateral. This “circus” of lenders can definitely be coordinated to successfully replace the loans your bank has terminated, but it can be difficult, frustrating, and time-consuming for any small-business CEO or CFO. Finding the correct lenders, getting them to cooperate with complex legal documents such as subordination agreements, and then helping them to close simultaneously is challenging. Add to this the normal operational duties of your business, lack of experience in the sector, and an aggressive bank harassing you to get out, and the entire exercise can be exhausting.

Finding the right advisor to help you with recapitalization

A smart alternative is to spend time finding an advisor who knows what he or she is doing in the alternative lending space. You need someone who is familiar with the many lenders and who has experience negotiating and shopping loans to appropriately priced sources of capital. In the small-business world these are called advisors; in the mid- to large-business arena, they are called investment bankers.

There are a few true investment bankers in the small-business arena, such as our firm US Capital Partners, Inc. US Capital is both a lender and lead arranger or advisor on restructuring small-business debt. When it is cost effective, US Capital will bring in another lender for your loan, then provide additional capital from its own fund to “fill the gap” in required capital to take the bank out in the most cost-effective way.

When looking for a recapitalization advisor or small business investment banker, it is important to look for someone with recent experience in arranging or making loans similar in size to your requirement. Working with someone who has a track-record of larger deals may not be the best choice. The world of large-business or middle-market finance is very different to the world of small-business finance as far as lenders and structure are concerned. The chances are the advisor for larger businesses, although competent, will not be very familiar with the particular lenders in small business or even the common loan structures in this space. They will therefore take longer to get results, and those results may not be optimal.

The bottom line: If you choose to use an advisor to assist you with the financial restructuring of your company, consider someone who does, and has done, deals of your size.

Since 1998, US Capital Partners has been providing prompt, innovative, and reliable financing solutions including lending, corporate financing, and debt re-structuring to businesses across the United States and abroad. If you are looking for financial support, visit US Capital Partners, Inc. at http://www.uscapitalpartners.net/ or call (415) 882-7160.